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Ways to Reduce Personal Debt After the Holidays

Jan. 5, 2011
3 mins
A man rubs a woman's back as she looks overwhelmed while holding a calculator and pointing to a notebook

Hopefully everyone had a great holiday break and you were able to visit family over Christmas, exchange presents, take advantage of the sales on Boxing Day and celebrate the New Year. After all that celebrating, now is the time of year when the anxiety starts to kick in with the anticipation of the credit card bills showing you just how much those celebrations cost.

Canada's increasing personal debt has been given a lot of exposure lately and for many, the debt has only risen after the holidays.

Top tips for reducing personal debt in 2011

Pay off high interest debt first

The best way to start paying off that debt with the least amount of interest is to tackle the highest interest debt first, which for many people is their credit card debt. For example, you may have put your holiday shopping on a few different credit cards and also used your line of credit. Credit card interest rates are typically the highest and these cards can charge upwards of 20-30% annually compared to a line of credit at say Prime + 1% (4%), so it's best to make payments on your credit card before your line of credit to lower interest debt.

If you have an outstanding balance on your credit card, another strategy you can take advantage of is consider transferring to a credit card with a low balance transfer rate, such as the current MBNA offer of 0% interest on balance transfers for 15 months. This card enables you to transfer an outstanding balance from another credit card to the MBNA card, and then you won't have to pay interest on that balance for 15 months. So you can make payments against the outstanding amount rather than the interest, and pay it off more quickly.

Please note that any new purchases on the MBNA card that are not paid off each month will be charged at the standard interest rate (currently 17.99%). Also, as with any card, make sure you review the terms and conditions before applying.

Review your mortgage

Another good strategy is to review your largest debt which is typically a mortgage. Many Canadians are throwing away good money when it comes to their mortgage.

If your mortgage is coming up for renewal soon, don't simply renew with your current lender, make sure you do your research, compare mortgage rates and see what deals are available. Also, always make sure you speak to a mortgage professional before making any decisions.

Another way to eat into that mortgage debt more quickly this year is by changing your payment schedule. If you are current paying down your mortgage with monthly payments, and can afford a bit more, consider moving to a bi-weekly rapid payment schedule. This will only slightly increase the amount you pay off on your mortgage each year but will have a big effect on the overall interest you pay.

Consider consolidating debts

Most people will have various types of debt outstanding such as a mortgage, credit card balance, personal loan, line of credit, and a car loan. You are also likely paying different interest rates on the different forms of debt.

In some cases it might make sense for you to consolidate your debt into one loan which allows you to repay a single lender and many times you can get a lower overall interest rate, enabling you to pay off the debt more quickly.

Speak to your financial institution/planner/mortgage broker first to see what your options are. There are also not-for-profit organizations that will help people with free debt management advice such as Credit Canada.

Set a budget

The New Year is the time for making resolutions, so why not make one of your resolutions this year to set and maintain a budget? Not only can this help you to avoid overspending, but it can also help you make a plan to pay off that debt.

Maintaining the discipline to keep a budget throughout the year can be a challenge, but there are great, easy to use tools out there that can help you. One recently launched free service is, which is effectively an online personal financial planner. You can set up an account within a few minutes, it is very easy to use and automatically categorizes all your expenses. If you have multiple accounts with different banks or credit card companies, it consolidates all your accounts into one statement which makes life much easier.

Also, some of the big Canadian banks offer their own budgeting software like RBC's myFinanceTracker, which is available to RBC customers.

Using budgeting software is a good first step towards getting your debt under control.

Penelope Graham

A first-time homeowner and newbie investor, Penelope Graham is the quintessential millennial, navigating the world of personal finance and wealth management. A self-professed monetary policy nerd, she follows the often-controversial housing market closely and specializes in mortgage, credit card and personal finance news.

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