How to prioritize debt repayment when money is tight

The order you pay off debts can change how much interest you pay and how long it takes. The two main methods are the avalanche and the snowball.

By Promissory.ca Editorial Team Reviewed against official Canadian sources Last updated: 2026-09-16

Why the order of repayment matters

If you owe money on several debts, the order in which you pay them down can change how much interest you pay and how long it takes to be free of them. Paying a little extra toward the right balance makes a real difference over time. Paying the same extra toward the wrong one can cost you money for no benefit.

Both of the methods below work. The right one for you is the one you will actually stick with.

Two proven methods

The avalanche method

List your debts by interest rate, from highest to lowest. Pay the minimum on everything, then put every spare dollar toward the highest-rate debt. When it is gone, move to the next highest. This method usually costs the least in total interest, because you are attacking the most expensive money first.

The trade-off is that the first debt can take a while to clear, and some people lose momentum before they see progress. If that sounds like you, consider the snowball instead.

The snowball method

List your debts by balance, from smallest to largest. Pay the minimum on everything, then put every spare dollar toward the smallest balance. When it is cleared, roll that payment onto the next smallest. The cost in total interest is often higher than the avalanche, but the early wins can keep you going.

Behaviour matters as much as arithmetic. A method you stick with beats a mathematically better one you abandon after two months.

Which one to choose

If your debts carry very different interest rates, the avalanche usually saves more. If you have several similar small balances and you need to see progress to stay motivated, the snowball can be the better choice. Some people combine them: clear one small balance for momentum, then switch to the highest rate.

Either way, the most important step is to keep paying at least the minimum on every debt, on time, every month. The method only decides where the extra money goes.

Where payday loans fit

Payday loans are among the most expensive forms of credit in Canada. In provinces with a payday regime, the cost is capped at $14 per $100 borrowed, on loans up to a maximum of $1,500, and Quebec does not permit payday lending at all. Because the cost is so high relative to the amount borrowed, a payday loan usually belongs at the very top of your repayment list, ahead of ordinary credit card debt.

Federal law sets the criminal rate of interest at 35% APR, since 1 January 2025, down from 48%. If a debt appears to cost more than that, treat it as a serious warning sign and get advice before you borrow further.

Steps to build a repayment plan

1. List every debt with its balance, interest rate, minimum payment and due date.
2. Add up your minimum payments and compare the total with your income after essentials.
3. Make sure the minimums fit. If they do not, get help before you fall behind.
4. Choose avalanche or snowball and write the order down.
5. Find any spare money in your budget and direct it to the first debt on the list.
6. Make every payment on time, and automate them where you can.
7. Recheck your plan every few months as balances, rates and income change.

Track your progress in a way you can see

Write down each balance and update it after every payment. Seeing the numbers fall is one of the most effective ways to stay motivated, especially in the early months when progress can feel slow. If you use the avalanche method, note the interest you avoid as well as the balance you clear, because that is where the method pays off.

Do not ignore minimum payments

Missing a minimum payment can trigger late fees, a higher penalty rate on some accounts, and a mark on your credit report. If you cannot cover every minimum, contact your creditors before you miss a payment rather than after. Some will work out a temporary arrangement, and it is easier to negotiate from a position of contact than from silence.

Build a small buffer

It is tempting to throw every spare dollar at debt, but that leaves nothing for an unexpected expense, which often goes straight back onto a card. A small emergency fund, even a modest one, can stop a single setback from undoing months of progress.

Consider consolidation, carefully

Combining several debts into one payment can make a repayment plan easier to follow, and it can lower your interest cost. It does not reduce what you owe on its own, and if the new debt is secured by your home, default puts your home at risk. Compare the total cost of credit, not just the monthly payment, before you consolidate.

When to get professional help

If your minimum payments exceed what you can afford, or if you have already tried a repayment plan and fallen behind, talk to a non-profit credit counselling service. For formal relief, a Licensed Insolvency Trustee can explain a consumer proposal or bankruptcy. Both are better than waiting until collections or a lawsuit force the issue.

Where Promissory.ca fits

Promissory.ca is not a lender, a credit counsellor or a Licensed Insolvency Trustee. We do not make lending decisions and we do not charge you a fee. We publish plain-language information and calculators, and we may receive compensation from lending partners. Any decision about your debts is yours, and you are never obligated to accept an offer.