Everyday money
Debt repayment: compare methods and know when to get help
Understand higher-interest-first and smallest-balance-first approaches with the same available funding.
The key idea
After required minimums, extra money can target a high-interest balance or a small balance. Compare methods using the same total payments. Arrears, essential needs and legal or secured-debt consequences may require attention before either method.
Build a usable debt list
Record creditor, balance, interest rate, minimum, due date, arrears and whether the debt is secured. Separate an estimate from a current statement. If minimums cannot be paid alongside essentials, an allocation method alone is not the solution. FCAC: paying back your debt
Two methods, shared minimums
With higher-interest-first (often called avalanche), extra payments target the highest rate while minimums continue elsewhere. Under comparable funding and ordinary assumptions, this reduces interest more efficiently. Smallest-balance-first (snowball) targets the smallest balance to close accounts sooner, but may cost more. Neither works by ignoring other minimums. FCAC: paying back your debt
Keep total funding comparable as a balance is repaid. If one plan reduces the overall payment instead, it is not the same experiment. Fees, promotional rates and payment restrictions can change the comparison.
Handle pressure before optimizing
Past-due accounts can add charges or other consequences. Contact creditors to discuss available arrangements before assuming payment dates or terms can change. Debt secured on a home, essential utilities and legal obligations may need specific advice. FCAC: paying back your debt
FCAC explains how to find credit counselling and compare its fees and services. For insolvency options, use the federal Office of the Superintendent of Bankruptcy’s information and licensed-trustee directory. An upfront promise to erase debt is not proof of a legitimate solution. FCAC: getting help from a credit counsellor
Consolidation changes the debt, not its existence
Compare the new rate, fees, term, total repayment and any collateral. A lower monthly payment over a much longer period may cost more overall. A consolidation loan also needs approval; it is not extra income.
See it in practice
Where an extra $100 goes
| Debt | Balance | Annual nominal rate |
|---|---|---|
| A | $2,000 | 20% |
| B | $500 | 10% |
Assume interest for the next month is annual rate ÷ 12 on these balances, with no new charges or fees. Paying $100 extra to A avoids about $1.67 next-month interest ($100 × .20 ÷ 12); paying it to B avoids about $0.83. Amounts are rounded to cents. This is a one-month mechanism example, not a full card payoff schedule. Smallest-balance-first would target B; higher-interest-first targets A.
Check your understanding
Does snowball mean stopping minimum payments on larger debts?
No. Both methods retain required minimums on all debts and direct the extra amount to the chosen target.
A useful next step
Use the Family Budget Planner to summarize affordable monthly funding. It does not compare snowball/avalanche payoff dates or interest. If required payments are unaffordable, start with the official help routes rather than a more aggressive target.
Inspect the sources
Primary references checked September 18, 2026. A source check is not professional financial or legal review.
- FCAC: paying back your debtCurrent at check · Canada; debt contract/jurisdiction matter
- FCAC: getting help from a credit counsellorCurrent at check · Canada; provincial/territorial regulation; federal insolvency