How to Deal With Your Debts?

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At the end of your career, you must try as much as possible to reduce or pay off your debts in full. To avoid having new ones, you can look at our content that explains how to organize your finances, in the "Mid-career" section.

Here are some tips on how to reduce your debts:

Pay off the debt with the highest interest rate first

Start by paying off the debt with the highest interest rate. That is the most effective way to start because you will simply pay less interest. Often, it may even be worth your while to withdraw money from your TFSA to pay off your credit card balance because the interest rate is very high.

Use a tax refund to pay off a debt

Do you think you will receive a tax refund? You could use it to pay off a debt that has a high interest rate rather than invest it. For example, if your debt is at a 7% rate and you could possibly earn 5% from an investment once the management fees have been deducted, it would be best to pay off your debt faster rather than invest that money.

Use your credit card wisely

As much as possible, use your credit card only for expenses you can fully repay at the end of the month. It is not always obvious, but the interest rate on an unpaid balance is high. On average, it is 19%, therefore, the amount to be paid adds up quickly.

Group your debts if you are a property owner

If you are a property owner, you could group your debts on a home equity line of credit because the interest rate is often lower than the one for other types of loans, such as personal loans or credit cards. In that type of loan, it is your home that guarantees your loan, and its value determines how much financing you can obtain.

For example, let's say that you have a car loan of $25 000 at a rate of 8% over 5 years and a balance of $4000 on your credit card at a rate of 19%. Since your mortgage has been repaid in part, you could see with your financial institution if you can use the space available on your mortgage. If that is the case, you could finance your debt of $29 000 with your home equity line of credit, surely at a lower rate. If the rate is 5%, for example, you will save more than $6500 after 5 years. 

But be careful: you must avoid using your line of credit for things you would have not financed normally. It remains a debt and, at the end of your career, ideally, you should avoid it.

Check your credit report

Keep an eye on your credit report. Check it at least once a year to see if there are any errors or if someone applied for credit without your knowledge. You can do so by contacting your financial institution; certain institutions offer it online.

You can also check on the TransUnion  and Equifax  websites, which manage credit reports and scores. In addition, you can lock your credit report free of charge on those two websites, which means that if someone wants to apply for credit in your name, the application will be rejected, unless you have agreed.

Who can help you manage your debts?

• You can see a financial advisor at your caisse or bank.
• You can also use the coopérative d'économie familiale (ACEF) in your area  (French only) that are often free.
• If your situation seems to be out of control, you can ask a syndic to help you. A syndic is an impartial (neutral) professional who is responsible for advising you in your best interest.