How to Pay Off Debt in Canada: Avalanche, Snowball and the Minimum Payment Trap
Stop paying the minimum and pay a fixed amount: on a $5,000 card at 20.99% that turns 26 years 8 months into 2 years 1 month at $250 a month. Then put every spare dollar on the highest-rate debt first. Smallest-balance-first costs more, here $796, but clears its first debt a little sooner.
Paying off debt is two decisions: how much to pay each month, and which debt gets the extra. The first matters far more than the second, and most advice spends its time on the second. Both are computed below.
The minimum payment trap
A typical Canadian card minimum is the month's interest plus 1% of the balance. It is recalculated every month, so as the balance falls the payment falls with it, and almost all of each early payment is interest. On a $5,000 balance at 20.99%, the first minimum is $137. A year later it is $122.
Minimum of interest plus 1% of the balance, with a $10 floor, recalculated monthly; interest at 20.99% a year charged monthly. The tail is long because the payment shrinks with the balance.
| Paying $5,000 at 20.99% | Time | Interest |
|---|---|---|
| Only the minimum, as it shrinks | 26 years 8 months | $8,329 |
| The first minimum, $137, held fixed | 4 years 11 months | $3,017 |
| A fixed $250 a month | 2 years 1 month | $1,207 |
Simply refusing to let the payment shrink, paying $137 every month, saves $5,312 and 21 years 9 months. No budget cuts, no new account: the same cheque you write today, written every month until it is gone. Your statement is required to show how long the minimum would take; it is worth reading once. The credit card payoff calculator runs it for your own balance and rate.
Avalanche or snowball, on real numbers
With more than one debt, pay every minimum and put whatever is left on one target at a time. When it clears, its payment rolls onto the next. Avalanche targets the highest rate; snowball the smallest balance. Here is a household with $25,000 across four debts, $665 of minimums, and $200 a month extra:
| Debt | Balance | Rate | Minimum |
|---|---|---|---|
| Line of credit | $2,500 | 9.95% | $50 |
| Store card | $3,000 | 29.99% | $90 |
| Credit card | $7,500 | 20.99% | $225 |
| Car loan | $12,000 | 7.49% | $300 |
Illustrative balances and rates typical of each product, not quotes.
- Month 13Store card cleared
29.99% rate
- Month 26Credit card cleared
20.99% rate
- Month 29Line of credit cleared
9.95% rate
- Month 35Car loan cleared
7.49% rate
- Month 11Line of credit cleared
$2,500 starting balance
- Month 20Store card cleared
$3,000 starting balance
- Month 31Credit card cleared
$7,500 starting balance
- Month 36Car loan cleared
$12,000 starting balance
Avalanche costs $796 less. Snowball gets its first win in month 11, the line of credit, against month 13 for avalanche. That is the real trade: 2 months of earlier progress for $796. If you have abandoned a plan before, the earlier win may be worth it. If you have not, take the cheaper order. The debt payoff calculator runs both on your own debts.
What an extra payment buys
| Extra each month | Debt-free in | Total interest |
|---|---|---|
| None | 4 years 4 months | $9,408 |
| $100 | 3 years 5 months | $6,295 |
| $200 | 2 years 11 months | $4,972 |
| $400 | 2 years 3 months | $3,607 |
The same four debts, avalanche order. The first $200 a month is worth $4,436 of interest and 1 year 5 months, far more than the choice of order. Know your real take-home with the income tax calculator before deciding what you can spare, and if your hours vary, the hourly to salary calculator gives a monthly figure to plan against.
The Canadian limits worth knowing
Since 1 January 2025 the criminal rate of interest is 35% APR, down from about 48%. Payday loans are regulated separately and capped at $14 per $100 borrowed, which on a typical two-week loan is roughly 365% a year: legal, and the most expensive credit there is. Borrowing to clear a payday loan from almost any other source saves money.
Car loans are the other quiet one. Long terms keep you owing more than the car is worth for years, which matters if you need to sell. The car loan calculator shows how long that lasts on your terms.
If the numbers do not work at all, a non-profit credit counsellor can negotiate a debt management plan, and a Licensed Insolvency Trustee, the only professional who can file a consumer proposal, offers a free first consultation.
Then switch to building
When the last debt clears, keep making the payment, to yourself. You are already living without it. The compound interest calculator shows what $865 a month becomes, and TFSA vs RRSP vs FHSA covers where to put it.
Frequently asked questions
Should I use the snowball or avalanche method?
Avalanche, highest rate first, always costs least. On the example debts on this page with $200 a month extra it saves $796 over snowball. Snowball, smallest balance first, clears its first debt sooner, here in month 11 against month 13. If that early win is what keeps you going, it can be worth the cost; the budget is the same either way.
How long does it take to pay off a credit card with minimum payments?
A $5,000 balance at 20.99%, paying the typical minimum of interest plus 1% of the balance, takes 26 years 8 months and costs $8,329 in interest. The minimum shrinks as the balance falls, which is what stretches it out: the first one is $137, and a year later it is $122.
How do I get out of the minimum payment trap?
Pick a fixed amount and keep paying it as the balance falls. Even holding the first minimum of $137 constant clears the same card in 4 years 11 months with $3,017 of interest, instead of 26 years 8 months.
Should I pay off debt or invest?
Compare the guaranteed return. Paying off a 20% card is a guaranteed 20% return after tax, which no investment reliably matches. Below roughly the return you would expect from a balanced portfolio, as with most mortgages, investing usually comes out ahead, though the certainty of repayment is worth something too. An employer match on a pension or RRSP still comes first.
What is the maximum legal interest rate in Canada?
35% APR since 1 January 2025, down from about 48%. Payday loans are capped separately at $14 per $100 borrowed, which on a two-week loan works out to roughly 365% a year.
Does paying off debt help my credit score?
Usually, mainly through credit utilization, the share of your card limits you are using. Keeping a paid-off card open rather than closing it preserves both the available credit and the account's age.
Who can help if I can't keep up with payments?
A non-profit credit counselling agency can arrange a debt management plan with your creditors. If that is not enough, a Licensed Insolvency Trustee is the only professional who can file a consumer proposal or bankruptcy, and the first consultation is free.
Related guides
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The province decides $8,127 of a $100,000 salary. Every province and territory ranked by what you keep, and why Quebec is not last until about $146,000.
Researching and writing about Canadian personal finance since 2026.
Last reviewed October 2026 · How we research
“How to Pay Off Debt in Canada: Avalanche, Snowball and the Minimum Payment Trap.” Vault Nerd, https://www.vaultnerd.com/ca/learn/how-to-pay-off-debt, updated October 2026.
- Canada Gazette and Department of Finance: Criminal Interest Rate Regulations, 35% APR and the $14 per $100 payday loan cap from 1 January 2025
- Financial Consumer Agency of Canada: credit card minimum payments and statement disclosure
- Office of the Superintendent of Bankruptcy: Licensed Insolvency Trustees and consumer proposals
No product is reviewed on this page and Vault Nerd has no affiliate relationship in this category. Figures checked October 2026.