By Julie Jaggernath
When you’re trying to figure out how to get out of debt, it helps to know that not every debt needs to be tackled with the same urgency. Some debts are more expensive than others, and your debt repayment strategy should reflect that. That doesn’t mean you can stop making payments on lower-priority debts, but it does mean that sticking to minimum payments on some debts while you attack others first can be a smart, deliberate approach.
Pay Off High Interest Debt First, Keep Up Minimum Payments on the Rest
The foundation of any solid debt repayment strategy is to put your extra money toward your most expensive debt first. High interest debt, like credit card balances that carry rates of 19.99% or more, costs you the most over time. While you’re focusing extra payments there, making minimum payments on your other debts keeps them in good standing and protects your credit score.
This approach to dealing with debt is often called the avalanche method. You list your debts from highest to lowest interest rate, focus extra payments on the top debt, and work your way down as each balance is cleared. It’s one of the most cost-effective ways to reduce what you owe overall. If you want to see how much you can save, check out our debt repayment calculator.
Government Debt and Taxes in Arrears: Pay These First, Not Last
One important exception: if you owe government debt, such as overdue income taxes or other Canada Revenue Agency (CRA) balances, that should be near the top of your list, not the bottom. The CRA has significant collection powers, including wage garnishment and withholding tax refunds. Falling behind on government debt can create bigger financial and legal problems than almost any other type of debt will do. If you’re unsure where a tax balance fits in your overall plan, our credit counsellors can help you sort it out.
Federal Student Loans: Low Cost and a Tax Credit Too
If you have a federal government student loan, as of April 1, 2023, the Government of Canada permanently eliminated interest on Canada Student Loans and Canada Apprentice Loans. That means if your loan is federally held, you’re no longer accumulating interest, making it one of the least urgent debts to pay down aggressively.
Because there is no interest on the federal portion, there’s no tax credit to claim on it either. However, if you paid interest on your federal loan before April 1, 2023, you may still be able to claim that on your taxes. You can carry forward up to five years of unused student loan interest tax credit amounts to apply when your income is higher, which is worth checking when you file.
The federal loan also comes with flexible repayment: the amortization can be extended up to 15 years, which lowers your required monthly payment and frees up cash to put toward more expensive debts. Just be aware that three important benefits disappear if you consolidate your government student loan into a personal loan at your bank or credit union: the flexible amortization terms end, you’re paying interest on the new loan, and any remaining tax credit eligibility are both lost once the loan is paid off in the refinancing process.
Provincial Student Loans May Still Charge Interest
While federal loans are now interest free, some provincial student loan portions still charge interest. The rate and terms vary depending on your province. For example, Ontario and Saskatchewan integrated loans continue to charge interest on the provincial portion, while British Columbia, Manitoba, New Brunswick, and Newfoundland and Labrador have eliminated interest on their provincial portions as well.
If you have a Canada-integrated student loan, check your statements or log in to your NSLSC account to confirm which portion still carries interest. The student loan interest tax credit (15% federally, with additional provincial credits depending on where you live) still applies to any eligible interest you actually pay on qualifying government loans. If you’re not sure whether your provincial loan qualifies, a tax professional can help you confirm.
What About Non-Government Student Loans and Consolidating Government Student Loan Debt?
Student loans and lines of credit from a private lender or financial institution do not qualify for the student loan interest tax credit. The same applies if you’ve already consolidated a government student loan into a new loan at your bank. Once that happens, the loan loses its special status with the CRA and no longer qualifies. If you’re thinking about consolidating your student debt, it’s worth reviewing your full situation first. Our credit counsellors can walk through the pros and cons with you at no cost.
Mortgages and Low-Rate Instalment Loans Can Also Wait
Your mortgage and other low-rate instalment loans, like a dealership car loan with a set monthly payment, typically don’t need to be your top debt repayment priority either, as long as you’re making all required payments on time. These debts have structured repayment terms, predictable payments, and relatively lower interest rates compared to credit card balances, payday loans, and financing company car and personal loans.
The goal is to focus any extra cash you have on your high interest debts first. Once those are cleared, you can revisit whether making extra mortgage payments or topping up your savings and investments makes more sense for your situation. Learn more about strategies to pay off debt and building that bigger picture plan to help you achieve your goals.
Not Sure Where to Start? We’re Here to Help
Figuring out which debts deserve your attention first can feel complicated when you’re juggling multiple balances and a budget that always seems just a little bit too tight. The good news is that you don’t have to work it out alone. At the Credit Counselling Society, we offer free, confidential, non-judgmental appointments to help you look at your full financial picture and put together a plan that works for your situation. The first call is the hardest but the earlier you reach out, the more options you’ll have available to you.
Last Updated on May 1, 2026
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