If you’re new to Canada or still learning the ropes of personal finance, managing debt can feel overwhelming — especially in 2025, when prices, interest rates and job markets seem to be changing every few months. But don’t worry, you’re not alone. The good news is you can get ahead with the right knowledge and plan. Debt management doesn’t have to be complicated, but people often make it that way. Let’s break it down to the basics:
What is debt, really?
Debt is money you borrow, usually with the agreement that you’ll pay it back later — with extra added on (called interest). You might take on debt through a credit card, a car loan, a student loan, or even a mortgage. Some debt can be useful if used wisely, but it becomes a problem when the payments become too much to handle or when you don’t have a plan to pay it off.
Why is debt harder to manage in 2025?
Over the last couple of years, interest rates in Canada have gone up. That means borrowing money costs more than it used to. If you have a credit card, line of credit, or variable mortgage, you might already be seeing your payments increase — even if your spending hasn’t changed. The problem is when you don’t have enough money to pay more than the basic interest payment; unless you can put more towards the principal, you’ll never see a decrease in the loan. Why is that harder in 2025? In a word, inflation.
Inflation is the rate at which the general level of prices for goods and services rises over time, which means the purchasing power of your money decreases. Inflation has pushed up the cost of everyday things like food, gas and rent. When your income doesn’t rise at the same pace, it can feel like you’re falling behind, and many people end up turning to credit just to get by. So how do you move forward?
Step 1: Know what you owe
Before you can make a plan, you need to know exactly how much debt you have. That might feel scary—but not knowing is worse. Write down:
– Who you owe money to
– The balance (how much you still owe)
– The interest rate (how much extra you’re paying to borrow it)
– The minimum payment
This simple list is your starting point. No shame — just facts.
Step 2: Prioritize your debts
Some debt costs more than others. For example, a credit card with 21per cent interest is way more expensive than a student loan at 5 per cent. Start by tackling the high-interest debt first. This strategy is called the avalanche method: you pay off the costliest debts first while making the minimum payments on the rest.
Can’t afford to make more than the minimum? That’s okay. At the very least, don’t miss payments. Late fees and damage to your credit score can make your situation worse.
Step 3: Make a simple budget (yes, you need one)
The dreaded B word. Budgeting doesn’t mean you can’t spend. It just means you tell your money where to go instead of wondering where it went. You get to prioritize your spending instead of getting a surprise statement and wondering where it went…
Start by writing your fixed non-negotiables – things you must pay each month. Rent, cell phone, the minimum debt payment.
- Then add the fixed yet variable; it changes – groceries, gas, savings, extra debt payments.
- Then add the nice to have but not necessaries – subscriptions, eating out, gym memberships
Then allocate your income to these and the reality is it may not cover everything you want. Now you can decide what’s important and what is not a priority.
Step 4: Consider consolidation
If you have several high-interest debts, you might consider a debt consolidation loan. This is one new loan that pays off your existing debts and combines them into one monthly payment—ideally at a lower interest rate. Just be careful: this only works if you stop using the old credit cards and don’t take on new debt.
Step 5: Ask for help
You’re not supposed to do this alone. Canada has many non-profit credit counselling services that offer free advice and budgeting help. If you’re a newcomer, there are also immigrant support centers that include financial workshops and assistance. You can also work with a financial advisor who can explain everything in a way that makes sense for your unique situation.
Extra tips for 2025
– Check your credit report at least once a year for free at Equifax Canada or TransUnion. Mistakes happen — and so does identity theft.
– Avoid payday loans at all costs. They may seem quick and easy, but the fees are shockingly high and can trap you in a dangerous cycle.
– Build a small emergency fund — even $500 can help you avoid more debt the next time something unexpected happens.
Managing debt doesn’t mean giving up on your dreams. It means taking control of your money, so your money doesn’t control you. In this changing economy, being aware, making minor changes, and asking for help can go a long way.
