How to Get Out of Debt?

The cost of living in Quebec continues to rise, and with it, the financial pressure felt by many households. Whether it's credit cards, personal loans, lines of credit or debts accumulated over time, it can be difficult to keep track and keep your head above water.

The good news is that there are practical strategies for paying off your debts and regaining financial stability. Whether you're slightly overwhelmed or on the verge of overindebtedness, the experts at our licensed insolvency trustees give you their advice on how to get out of this situation.

Taking stock of your financial situation

First and foremost, you need to know how much debt you really have. This first step will lay the foundations for a realistic and sustainable repayment plan.

Draw up a complete list of your debts

Make a note of each debt: the balance to be repaid, the interest rate, the due date and the minimum payment.
Distinguish between :

• Secured debts, such as a car loan or mortgage.

• Unsecured debts, such as credit cards, personal lines or student loans.

This overview will help you prioritise reimbursements according to their real cost.

Calculate your debt ratio

There is a simple indicator to help you assess whether your situation is at risk.

Debt ratio = (Total of your monthly debts ÷ Gross monthly income) x 100

• Less than 30%: healthy situation.

• Between 30% and 40%: vigilance required.

• Over 40%: risk of budget imbalance.

This will give you a better idea of how much leeway you have.

Identifying the causes of debt

An effective plan is also based on honest reflection. What led to this accumulation? A loss of income? Unexpected expenses? A lack of budget planning? Understanding the source of the problem helps prevent it from happening again.

Developing an appropriate repayment strategy

Once the picture is clear, it's time to establish a strategy. Two methods are particularly well known for their effectiveness.

The "avalanche" method

This approach involves repaying debts with the highest interest rate first, while continuing to pay the minimum on the others. In this way, you save on interest and speed up the process of getting out of debt.

Example: prioritise a 19.9% credit card before a 10% loan.

The "snowball" method

This method favours the debt with the smallest balance to achieve quick wins and boost motivation. Each debt repaid frees up an amount that you apply to the next one, creating a "snowball" effect.

Optimising your budget to speed up repayment

Reduce non-essential expenditure

Analyse your outgoings: subscriptions you don't use much, meals out, impulse purchases. Even small monthly adjustments can free up several hundred dollars a year for repayment.

Increase your income

Some people choose to temporarily increase their income to reduce their debts more quickly. This can come from self-employment, selling unused items, small contracts, renting out a room in their home or other sources. Each additional amount helps to reduce the interest paid.

Apply the 50-30-20 rule

A simple budgeting method :

• 50% of your income for basic needs (housing, food, transport)

• 30% for personal expenses

• 20% for repayments or savings

This structure promotes sound and sustainable financial discipline.

Exploring the financial solutions available in Quebec

When debts become difficult to manage, there are several options for regaining control.

1. Debt consolidation

The debt consolidation allows you to consolidate several debts into a single loan at a lower rate allows you to :

• Simplify monthly payments,

• Lower interest costs,

• Avoid missed payments.

Caution: we recommend that you compare rates and conditions, as some consolidations can extend the repayment period.

2. Mortgage refinancing

For homeowners, it is sometimes possible to use the equity in the home to pay off expensive debts. This solution reduces interest rates, but carries a risk. In the event of non-payment, the property could be at risk.

3. Negotiating with creditors

If you are in temporary difficulty, it is possible to negotiate directly with your creditors to:

• Apply for a rate reduction,

• Negotiate a deferred payment,

• Implement a plan tailored to your financial capacity.

This demonstrates your good faith and may avoid collection action.

4. The consumer proposal

The consumer proposal is a formal agreement between you and your creditors, governed by the Bankruptcy and Insolvency Act.

It allows you to :

• Repay part of your debts according to your real capacity;

• Conserve your assets (car, house, RRSPs, etc.);

• Effectively terminate collection calls and lawsuits immediately.

This solution is suitable for people with a stable income but debts that are too high to repay in full.

5. Personal bankruptcy

The personal bankruptcy is a measure of last resort, considered when all other options have been exhausted. It allows the majority of unsecured debts to be written off and a fresh start to be made.

Although this solution has consequences for your credit file, it offers immediate relief and a basis for rebuilding your finances.

Take back control of your finances today

With all these methods, paying off your debts is no longer an insurmountable task. It's a process that requires good budgeting and a sense of priorities. And don't hesitate to ask professionals about the solutions available to help you stabilise your financial situation.

Budget planning plays a major role in this balance, and all individuals are strongly advised to use it, regardless of their creditworthiness.

Mallette and its team of experts can help you achieve your financial goals. Don't hesitate to contact us to regain your freedom of mind!