• checkbox logo Reduce debt by up to 80%

What debts to pay off first? Quick Tips

8 January 2021

Get a Free Debt Repayment Plan

Safe, secure & confidential

Many Canadians, especially during the holiday season, run into some extra cash, whether it is a small bonus from work or money from friends and family. The question is always: What should I do with that money?

Well, first thing first, use it wisely.

Good debt vs. bad debt

Most people think that all debt is bad debt, but that is not true. Many types of debt help to build equity, and also help to grow your net worth.

For example: a mortgage – every time you make a payment, your equity (net worth) increases.

That’s not say that there isn’t such thing as bad debt. Bad debts are very high-interest loans, or even credit card debts.

We want you to have more good debts, and less bad debts. If you ever need a bad debt to survive, like a credit card or payday loan, don’t carry the debt! Pay it off.

Figuring out who to pay:

  1. Make a list of all of your debt
    1. In one column put the name of the debt
    2. In the next column put the amount you owe
    3. And in the last column put the interest rate
  2. Sort the list by interest rate and then by amount owing
  3. Pay the highest interest rate first

What to look out for:


Most people think – ‘I’ll just pay the smallest one first, so I feel like I’m making a difference’. Although I understand that strategy, it is in fact not a very good one.


Debt like payday loans have such a high interest rate that they are impossible to pay off if you don’t pay them quickly, and they will soon grow to being your biggest debts. This is in contrast to something like a vehicle loan, where you have a set payment plan already and the debt is not increasing over time.


The short story is – pay off your credit card and payday loans first, then move on to a vehicle, mortgage and a consumer proposal.


‘Shouldn’t I pay my proposal first’?


Absolutely not! The consumer proposal has 0% interest, $0 in fees, $0 in penalties.


Always pay the high-interest debts first! Though you may want to pay off the proposal to ‘improve your credit’, you’ll be harming your credit much more but carrying bad debts.


Pay the bad, high-interest debts first, and then pay off your consumers.


Reach out if you need any help figuring out your budget.