Handling Debt on a Low Income

Handling Debt on a Low Income

December 28, 2023    Budgeting Advice , Credit Score

With the financial challenges of current inflation and high interest rates, many people in Canada are falling deeper into debt. The average Canadian carries an average of $3,909 in credit card debt. Add in utility bills, car payments, rent, mortgages – and it’s easy to see why many people are feeling overwhelmed in our current economic climate.

If you are finding it challenging to tackle your debt, especially if your income is on the lower end, there are strategies you can implement to make a debt-free life a reality.


When you’re in the thick of debt, it can feel easier to ignore the bills that keep coming your way than to face them. But being honest with how much you really owe is an important part of paying it off.

Start by making a list of every outstanding credit card balance, utility bill, loan payment etc and add them all up. Next, add the interest rates, late fees and any other possible penalties to those balances. Doing this will give you a true number to use for a realistic debt-payoff plan.


Making a budget will allow you to see a clear picture of where your income is coming from and where it’s going. Start by listing all your income sources and your fixed expenses. Fixed expenses are expenses that don’t change from month to month – things like rent and car payments.

Then, subtract the difference between your total income and your fixed expenses. The remaining total is the money you have available towards variable expenses – these are things like groceries, clothes and… your debt balances. Figure out how much money you need to set aside each month for variable expenses that are non-negotiable (like groceries). Then, delegate the remaining money to pay off your debt.


Once you make your budget, the total of your debts owed might look scary. The truth is that paying off debt is not an easy process, but it’s important to celebrate your wins (no matter how small) along the way.

Many people swear by the ‘Snowball Method’, which involves paying off your smallest debts first. Seeing those balances go to zero will help your mind recognize that you are making progress towards a debt-free life. It also means clearing out debts faster than if you started with your larger debts first. It’s a good strategy for staying motivated and keeping up the momentum!



Once your smaller debts are paid off, it’s time to move on to the larger ones. A common method for bigger debts is called the ‘Avalanche Method’ which means making the minimum payments on each larger bill, but then using any leftover money to pay off the balance owing with the highest interest rate.

Interest charges are added to your debt balance each month, so getting rid of the ones with the most significant interest means money will eventually start going back into your pocket. ​​


In general, it’s best to not take on any new debt when you are working towards paying down existing balances. As much as you can, avoid applying for new credit cards or loans and avoid any kind of unnecessary spending on your existing ones.

Why does this matter? Because taking on new debt could mean you find yourself in far more debt than you originally were and risk falling further behind on monthly payments.


Some people will jump to the option of borrowing money from a new source to pay off another. Unfortunately, this means you are only shuffling around your debt instead of actually paying it off.

With that being said, it can sometimes work out to your benefit. It’s possible to consolidate more than one credit card balance by paying them all off with a balance transfer credit card. These types of cards often have a time period where you are charged 0% interest on your balance. However, make sure you are looking out for balance transfer fees, which can be costly.


Consider consolidating your debts to work to your advantage. You can do this by taking out a debt consolidation loan from your bank or credit union and pay all of your debts off at once. Doing this will mean you only have one payment to deal with, often with a lower interest rate – making paying down your debt a lot easier.


If you’re still struggling to find leftover funds to pay off your debts, look for creative opportunities to increase your monthly income. ‘Gig’ jobs like dog-walking, food delivery or freelancing services are just some of the ways you can use your spare time to make some extra cash.

Even if you only increase your income for a temporary amount of time, that extra money is still making a dent in your debt. Everything makes a difference!


Your credit score is one of the most important indicators of your overall financial health. Lenders use it to determine how responsible you are when it comes to using credit. The higher your score, the easier it will be to get approved for new loans or lines of credit in the future. Plus, better scores also open up the door to lower interest rates on borrowed funds.

If you are feeling discouraged with your credit score, don’t worry! There are a number of simple things that you can do to boost and rebuild your credit score fairly quickly. This includes staying on top of payments, paying bills on time, not applying for new accounts too often and reducing your credit utilization ratio.


If you’re looking to rebuild your credit by making vehicle payments, our credit experts will help you get into a car with an affordable payment plan. Even with less-than-perfect credit, we can get you approved.

Our goal is to create a payment plan that fits your budget and work together to help manage your debt. Fill out the online Car Loan Application to get started with one of our experts today.

Rebecca Lake
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