Five Experts Answer: How Can Canadians Live Debt Free?

There are many paths toward living a debt-free life for you as a Canadian. The road you take depends on your life circumstances, the amount of debt you have, and what you are willing to do to achieve this goal.

We spoke to five Canadian debt experts and asked them about their approach to becoming debt free. We invite you to examine their advice on your journey toward financial independence. Here’s to a debt-free life!


One way for Canadians to achieve a debt-free lifestyle is to set a budget based on things that they need to buy, and not give in to buying things that they want. Having a budget is super helpful, because it raises awareness of where one’s spending patterns are and allows the individual to think of ways to lower their monthly expenses. Living below one’s means is never easy, but doing so is ideal to avoid getting into unnecessary debt.

Nancy Kim


Debt is a big problem in Canada: the average Canadian owes $8,539.50 in consumer (non-mortgage) debt, according to a recent Ipsos survey. Household debt is one thing, but the stress that Canadians feel about their personal finances is another beast entirely. Another study by the CBC found that 46% of Canadians are only $200 from financial insolvency.

So, what are some concrete steps that Canadians can take to live a debt-free lifestyle? These are our top tips!

  1. If possible, pay your bills on time and in full

While having good credit will get you a better deal on many credit products, credit cards do not truly reward you for your good credit. Most credit cards carry high-interest rates – usually around 19.9% and run up to 29.9%.

High credit card interest rates are scary and make it easy for credit card debt to get out of control. The best thing to do? Set up automatic payments and pay your bills on time and in full (if possible). Considering payment history makes up 35% of your credit score, this will hopefully help you stay debt-free and improve your score.

Set up automatic payments with a mobile app, online banking, or even your built-in reminder notifications on your phone. Whatever you choose to use, you can ensure that you’re always aware when your bills are due.

  1. Keep an eye on your credit utilization

Carrying large balances on your credit cards suggests to creditors you may not able to pay them off in full and can negatively impact your credit score. If you’re relying on your credit to cover your regular expenses, you could wind up in high-interest debt.

We recommend keeping your credit utilization below 30%. Credit providers and financial institutions will see your low credit utilization ratio as responsible credit use. So, if your credit card limit is $5,000 and your balance is $1,250, your utilization is at 25%.

You can improve your credit utilization by minimizing your account balances and increasing your credit limit if you know you can use credit responsibly.

  1. Always be saving money

We know you hear this all the time, but it’s because saving money is very important! Unexpected life events come up all the time and you need to be prepared.  Whether it be your car breaking down, a broken phone, or a move – having money set aside will help immensely so you don’t need to use credit.

Some helpful hints on how to save money:

  • Keep a monthly budget to cut out unnecessary spending. Apps like Mint can help!
  • Consider a side hustle. Dog walking and delivering food in your downtime may help you save for an emergency.
  • Adopt frugal spending habits. Use apps like Flipp to find coupons and buy secondhand when you can.
  1. Consolidate any existing debt

Debt consolidation is where you obtain a new loan to pay out several debts, bills and/or smaller loans that you’re currently making payments on. Doing so brings the debts together into a simple monthly payment, which most people find easier to keep track of. A debt consolidation loan makes debt repayment easy and can also provide more favourable payoff terms, such as a lower monthly interest rate to save money.

Consolidating multiple debts can help you save money on interest and can help you achieve a debt-free lifestyle sooner.

Rachel Surman

Savvy New Canadians

I have adopted various lifestyle habits and strategies to keep my finances on track and avoid debt. They are simple and applicable in most scenarios.

First, automate your bill payments. Don’t rely on your memory to keep track of all your bills and their due dates. Life happens, you forget, and the result is a bill that’s past due and a dinged credit score. Set up automatic bill payments from your chequing account and if possible, time the payments to coincide with your biweekly paycheque in order to avoid NSF fees.

Secondly, if you tend to shop on impulse, consider using the 72-hour or 30-day delay rule to gain control over your impulse spending. For non-emergency, small-ticket items, deliberately delay purchase for 72-hours and for bigger-ticket items, wait for 30 days or longer. Use this delay period to consider whether you really need to buy the item. Are there cheaper alternatives? What’s the impact on your wallet? This simple exercise has saved me from overspending numerous times.

Lastly, don’t make spending money a competition you must win. Forget about keeping up with the Joneses and spending money you don’t have simply because you want to impress others. Learn to live within your means and be comfortable in your own skin.

Enoch Omolulu

Canada Drives

  1. Find a method that works for budgeting.

Key tip: allocate as much as you can towards a financial goal of paying down debt. (i.e. 20 to 30% of your income.)

A solid budget could have avoided credit card debt in the first place, but can also help you get out of debt if it’s too late.

The 50-20-30 rule is a great principle to allocate your money: 50% toward needs, 20% toward savings, and 30% toward wants.

  1. Control impulse spending.

Credit card spending doesn’t command an emotional response, because no cash physically leaves our hands.

Research shows that credit card purchases don’t register as “spending” in our brains, because there’s no visible cash exchange. Impulse spending is another trap we need to be aware of, but we can minimize it by knowing our triggers and steering clear of them. For example, you should try to:

  • avoid the shops where you tend to make your biggest impulse purchases.
  • stay away from one-click shopping websites.
  • keep less money in your chequing account.
  • leave your credit cards at home when you go to the mall.
  • pay in cash; it’s more painful than paying with a card.
  1. Understand the power of compound interest. It can either be your best friend or your worst enemy.

If you understand how powerful small savings can be over time, you will want to save more. Conversely, if you understand the opposite end of the spectrum, with compounding interest on debt, you’ll also want to take action.

  1. Avoid payday loans at all costs.

The cost of borrowing, in some provinces in excess of 650%, can create a bad debt cycle that compounds. Understanding how dangerous debt can be will scare you away from debt.

  1. Start an emergency fund.

Some of the habits that help people find the extra cash for a rainy day translate into living a debt-free lifestyle.

  1. Download a budgeting app and use it.

The good ones will tell you spending by category, and alert you when you’re overspending or not sticking to your goals.

Colin Burton

Objective Financial Partners

Some ways to achieve a debt free lifestyle include:

Gain an understanding of your trade-offs, especially when it comes to small but frequent purchases (a daily coffee, for example).  Add them up over a month and ask yourself what else you could be doing with that money.  Pay for these items with the same debit card each time so you can easily add them up at the end of the month.  Avoid paying by cash as it makes tracking spending more difficult, especially small but frequent purchases.

Calculate and track the ratio of your savings and principal repayment to your income.  Your life stage and personal financial situation would determine what percentage you should be targeting.  If you are not yet retired, dedicating at least 10% of your income to a combination of savings and principal repayment (i.e. not including the interest portion of debt payments) should be a starting point, with a goal of getting up to 15% to 25% over time.  The best way to do this is automated savings/payments from each pay cheque or on a weekly or monthly basis.

Review your budget by category (or create one) and look for ways of reducing each.  Scrutinize any package deals to see if you truly need each piece of the package.  Consider if you still use memberships or subscriptions as much as when you first signed up for them.  Consider car sharing if you don’t drive often.

If you get paid every two weeks, then there should be two months per year where you get three paycheques instead of two (you get 26 pay cheques when you get paid every two weeks, and you get 24 pay cheques when you get paid twice per month).  Figure out which months those are for you, and be certain not to spend the extra money those months.  Use it all for savings and debt repayment instead.

Live below your means.  Nothing will work if you spend more than you earn.  You must be willing and able to spend less than you make after-tax in order to get out of debt and build up savings.

Jason Heath

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