Question 1

What is the difference between Snowball and Avalanche debt payoff methods?

Accepted Answer

The Avalanche method pays off debts with the highest interest rate first, saving you the most money in total interest. The Snowball method pays off the smallest balance first, giving you quick motivational wins. Both strategies use minimum payments on all debts, with extra money directed to one target debt at a time.

Question 2

Which debt payoff method is better for Canadians?

Accepted Answer

The Avalanche method saves more money in interest, making it the mathematically optimal choice. However, the Snowball method can be more effective for people who need early wins to stay motivated. If your interest rates are similar across debts, the difference is minimal and Snowball may be the better choice. For Canadian credit cards averaging 19.99% APR, the Avalanche method typically provides greater savings.

Question 3

When should I consider a consumer proposal instead of paying off debt myself?

Accepted Answer

If your total unsecured debt exceeds $25,000, your monthly payments consume more than 40% of your income, or your debts would take more than 5 years to pay off, you may want to consult a Licensed Insolvency Trustee about a consumer proposal. Consumer proposals are a uniquely Canadian option that allows you to pay back a portion of your debt while stopping interest charges. The first consultation is always free.

Question 4

How does paying off debt affect my credit score in Canada?

Accepted Answer

Paying off debt generally improves your credit score over time by lowering your credit utilization ratio. However, your score may temporarily dip if you close old accounts after payoff. Both Equifax Canada and TransUnion Canada factor your debt-to-available-credit ratio into your score. To maximize credit recovery while paying off debt, use our free recovery quiz for a personalized plan.

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