Ways to effectively manage your debt

Managing debt can be a part of everyday living. Many Canadians carry debt to finance large investments such as homes, vehicles and education. Credit products can also be used to make day-to-day purchases more convenient.

Here are some practical strategies that can help you effectively manage debt, work toward paying it down and feel more in control of your personal finances.

Make a list of all outstanding debts

Identifying everything you owe on one page is the first step in making a plan to manage your finances. Include the following for each individual debt:

Title (e.g., mortgage, personal loan, etc.)
Total amount owing
Minimum monthly payment
Interest rate

Cross-reference your list with your credit report to ensure there's nothing else outstanding in your name.

A credit report outlines the different types of credit (i.e., debts) to your name and payment history. There are two main credit bureaus in Canada: Equifax and TransUnion These are private companies that keep track of how you use your credit. They assess public records and information from lenders like banks, collection agencies and credit card issuers to determine your credit score.

You can obtain a copy of your credit history by contacting:

Equifax Canada 1-800-465-7166 Submission Form

Trans-Union Canada 1-877-713-3393 (Quebec only) 1-800-663-9980 (All other provinces)

Learn more about your credit score and what you need to do to keep your credit score healthy.

Make a plan to manage debt

Now that you have complete list of what you owe, here's how to organize an effective debt management plan:

Create a budget: A budget helps you understand your cash flow and what funds are available to make payments toward your debt.
Learn more about budgeting.
Track spending and identify areas to cut back: Knowing exactly where your money goes can help you take control of your finances. TD MySpend can help you track and categorize your expenses by needs, wants or other e.g., an education goal.
Adjust your plan if necessary: Revisit and revise your plan as time goes by or when you experience changes in income, expenses or unexpected events. Keeping track of your spending arms you with information that can help you to adjust your budget and stay on top of managing debt.
Pay balances on time: Avoid additional charges or carrying interest by staying on top of payment due dates. Missing payment due dates can also have a negative impact on your credit score, which is determined by your credit history. Every time you apply for or receive credit, and every time you make or don’t make a payment on time and use your credit, you're building your credit history. Your credit score is dynamic and can change as your financial circumstances change. Consider automatic payments to make this step easier, then get in the habit of regularly reviewing your account balance statement to ensure the correct amounts due have been paid every month.

Decide on a strategy to pay down debt

Having a plan and sticking to it can help you pay down your debt. There are a few different commonly used strategies for paying down debt. A TD advisor can review your financial situation and give you personalized advice on which method for paying down your debt makes sense for your finances.

Avalanche method: Start by paying available funds toward the debt with the highest interest rate to help pay it off faster while also meeting minimum requirements on other debts. Then, once the debt with the highest rate is paid off, you can focus on the debt with the next-highest interest rate, and so on. This method aims to help lower the overall amount of interest you may be paying, by putting more money towards paying down the principal of the highest rate debt.

Snowball method: Start paying available funds toward the debt with the smallest overall amount owing to help pay that down more quickly while also meeting minimum obligations on your other debts. Then, move onto paying extra available funds into the second-smallest amount owing, and so on. If you're more motivated by quick wins, this method could be a good fit.

Consolidation: If a single monthly payment appeals to you more than managing multiple bills, consolidating your debts might be worth exploring. This can make it easier to handle the repayment of all your existing debts and may often involve a single interest rate that is lower than the highest interest rate you may be paying. Learn more about loan consolidation.

A TD advisor can help you plan to reduce your debt. To discuss debt management further, book an appointment with a TD advisor.