Aug 13, 2026
Follow us on Google for more Money.ca news
Add us on GoogleDebt is the pervasive ache in the bone that Canadians can diagnose but have a hard time mending.
In fact, Canadian households now owe a record $1.80 in credit market debt for every dollar of after-tax income they earn, a ratio that has climbed for six straight quarters according to Statistics Canada. At the same time, the average Canadian is carrying a record $22,278 in non-mortgage debt, according to Equifax Canada’s latest quarterly report. Both trends point to the same underlying pressure: before groceries, rent or savings even enter the picture, more of Canadians’ paycheques are already spoken for.
Advertisement
That backdrop makes a common question feel more urgent than ever: if you're deep in credit card debt, should you throw every spare dollar at what you owe, or split it between repayment and savings? To see how the math actually plays out, consider a hypothetical case.
Thanks for subscribing!
The best of Money.ca delivered weekly.
By signing up, you accept Money.ca Terms of Use, Subscription Agreement, and Privacy Policy.
Let’s say Laurel is 30, was out of work for a year and has since found a new job that has an RRSP match. She now has $35,000 in credit card debt and $0 in savings, and she isn’t sure whether she should pay off her balance before she starts saving and investing, or whether she can do both in tandem.
A blended approach beats going all in on either side
The instinctive answer is to attack the debt as aggressively as possible. Credit card rates are typically high enough that paying down a balance beats almost anything one would earn by parking that same cash in savings instead.
However, there is a risk in funnelling every spare dollar toward debt and neglecting an emergency fund — a single surprise expense can restart the cycle, sending someone back to a credit card. That’s why it’s financially prudent to set some cash aside before going all in on payoff, as it creates an essential buffer.
That’s the logic behind U.S. finance personality Dave Ramsey’s popular Baby Steps program, which recommends saving a $1,000 starter emergency fund before shifting into aggressive debt payoff. The idea holds up well for the average Canadian. Setting aside even a small buffer in a Tax-Free Savings Account (TFSA), where withdrawals don’t create a permanent loss of contribution room, gives Canadians breathing room without derailing a debt-payoff plan.
For Laurel — or anyone whose employer matches contributions to a group Registered Retirement Savings Plan (RRSP) or workplace pension — it’s also worth contributing enough to capture that match before directing every extra dollar to debt. An employer match is an immediate, guaranteed return that’s hard to beat, even against a credit card charging 20% or more.
Must Read
- Are you paying too much for car insurance? Here are 3 clever ways to slash your monthly bill
- Here are 5 'must-haves' that Canadians constantly overpay for. How many of these are sabotaging your budget every single month?
- Here are the 5 biggest differences between rich and poor Canadians — which side do you fall on?
Join 19,000+ readers and get Money.ca’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Minimum payments are quietly costing Canadians
Once a starter fund and any employer match are covered, the math strongly favours the debt. Average credit card interest rates in Canada sit at roughly 20%, making them one of the most expensive ways to borrow money. The Financial Consumer Agency of Canada offers a credit card payment calculator that shows exactly how much minimum payments cost over time. Using this tool, if someone carrying a $1,000 balance switches from an 18% credit card to a 12% one, while still making only the minimum payment, they would save close to $400 in interest and clear the balance about two years sooner.
Advertisement
The risk of relying on minimum payments is widespread. In a survey of over 1,500 Canadians conducted for Equifax Canada in July 2026, one out of four respondents said they expect to make only the minimum payment on their credit cards this year. Julie Kuzmic, head of consumer advocacy and compliance at Equifax Canada, said balances left on minimum payments take far longer to repay and cost considerably more in interest, and recommended that anyone in that position review their payment obligations and consider speaking with “a reputable credit counsellor.”
A lower-rate loan can speed up the payoff
Laurel, or anyone in a similar spot, might also look at ways to lower the interest rate on the debt itself, rather than simply paying it down at 20%. RBC, for example, currently posts fixed personal loan rates between 10.99% and 19.74%, depending on creditworthiness.
If Laurel qualified for a $35,000 personal loan at 12.99%, a fairly typical rate for a well-qualified borrower, and paid it off over five years, she’d pay about $796 a month and roughly $12,760 in total interest over the life of the loan, with a clear payoff date. She could speed that up further by paying more than the scheduled amount each month, but even sticking to the plan would leave her debt-free in five years while paying far less interest than she would on a revolving credit card balance.
One payment, zero stress. Trade your mountain of bills for a single, easy-to-manage monthly payment. Managing multiple bills and trying to get out of debt is a tough balancing act. To help, consider consolidating high-interest debt into one easier-to-manage loan payment. Not only does this strategy make debt repayment easier, but it can help you get out of debt faster. To compare loan rates, use an online consolidator like Loans Canada. Simplify your life and get out of debt faster using Loans Canada.
Next steps for Canadians rebuilding their finances
- Check the actual interest rate on every card you carry and prioritize the highest one first
- Contribute enough to any employer RRSP or pension match before adding extra debt payments
- Build a small starter fund, even $500 to $1,000, in a TFSA so a surprise bill doesn’t send you back to your credit card
- Compare a personal loan or line of credit if it could meaningfully lower your interest rate
- Revisit the plan every few months, since income, debt levels and interest rates all change over time
There’s no single right answer for Laurel or every Canadian household, but the numbers make one thing clear: leaving a large balance on a card charging close to 20% is one of the most expensive financial decisions a Canadian can make. A small buffer, a plan to attack the highest-rate debt first and a periodic check-in are usually enough to get out from under it for good.
You May Also Like
- This 7-step plan from Dave Ramsey is designed to help you ditch debt, save more and build wealth — here’s how it works
- Prioritize these 4 critical investments and watch your net worth skyrocket
- Here are 8 solid money moves that could free up real cash every month — here's where to start
- Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going
The most expensive financial mistakes are often the ones you don't see coming. Join 19,000+ Canadians who get the money moves, risks and opportunities shaping their finances — delivered free each week. Subscribe now.
Christy Bieber a freelance contributor to Moneywise, who has been writing professionally since 2008. She writes about everything related to money management and has been published by NY Post, Fox Business, USA Today, Forbes Advisor, Credible, Credit Karma, and more.
