At LCTaylor, Licensed Insolvency Trustees, we’ve helped countless Canadians find solutions to their debt troubles. For many, financial hardship isn’t the result of reckless spending but rather unexpected life events—illness, job loss, or divorce. While some financial setbacks are unavoidable, there are key strategies you can implement to reduce the risk of accumulating unmanageable debt.
Here are six expert tips to help you stay in control of your finances and avoid debt:
1. Don’t Charge More Than You Have the Cash For
Credit cards offer convenience—you can shop online, consolidate multiple purchases, and even earn rewards. But the moment you carry a balance beyond your due date, that convenience comes at a steep price. With interest rates hovering around 30% on many credit cards, unpaid balances quickly spiral into significant debt.
A good rule of thumb? Treat your credit card like a debit card. If you don’t have the cash to cover a purchase immediately, don’t charge it to your credit card. For example, if your grocery budget is $250, you can put it on your card for ease, but only if you pay the balance in full when your statement arrives. Credit should be a payment method—not a way to finance unaffordable expenses.
2. Make Installment Payments to the Canada Revenue Agency (CRA)
If you’re self-employed, tax obligations can easily become overwhelming if not managed proactively. Unlike employees whose taxes are deducted automatically, self-employed individuals must set aside and remit payments themselves.
One of the biggest financial pitfalls for small business owners is failing to differentiate between income and tax obligations. Remember, not all the money that comes into your business belongs to you—some of it must go toward sales taxes, employee deductions, and income tax. Using these funds for personal or business expenses instead can lead to hefty interest charges and penalties from the Canada Revenue Agency (CRA).
To avoid falling behind, set up separate accounts for tax remittances and make installment payments to the CRA throughout the year. If bookkeeping isn’t your strength, consider working with an accountant or bookkeeper to ensure compliance and avoid unnecessary debt.
3. Never Co-Sign a Loan You Can’t Afford to Repay
Co-signing a loan for someone—a friend, partner, or family member—may seem like a kind and supportive gesture. But many co-signers don’t realize they are assuming full responsibility for the debt if the primary borrower defaults.
Before agreeing to co-sign, ask yourself:
- Can this person qualify for the loan without my help? Lenders often ask for a co-signer even if the borrower doesn’t strictly need one, simply to add another layer of protection. Don’t assume that co-signing is necessary—ask the lender directly.
- Would paying off this entire debt put me in financial hardship? Life is unpredictable—illness, job loss, or separation can leave the borrower unable to pay. If that happens, the lender will come after you for the full balance.
Unless you can answer “no” to both of these questions, your best bet is to politely decline.
Given the unpredictability of life events such as illness, job loss, or marriage breakdowns, co-signing is often not worth the risk unless you are entirely comfortable with the potential consequences.
4. Avoid Supplementary Cards
Many people don’t realize that supplementary credit cards come with a hidden risk: in most cases, the secondary cardholder is just as responsible for repaying the balance as the primary cardholder.
This is why credit card companies are so eager to offer supplementary cards—they gain an extra person to pursue for repayment if the primary cardholder can’t keep up. If you wouldn’t co-sign a loan for someone, you should reconsider taking on a supplementary card in their name.
5. Keep Gambling a Game
Gambling is a form of entertainment, not a reliable way to make money. The house always has the advantage, and chasing losses is a fast track to financial trouble.
To keep gambling from becoming a debt risk, set a strict budget—just as you would for a night out at the movies or a sporting event. Once you’ve spent your allocated amount, stop. A good trick? If your evening includes both gambling and dining out, eat first—this helps ensure you don’t use your meal money to keep playing.
6. Consult a Licensed Insolvency Trustee Early
If you’re beginning to feel overwhelmed by debt, don’t wait—reach out to a Licensed Insolvency Trustee (LIT) as soon as possible. Many people delay seeking help, only to later regret not addressing the issue sooner.
An LIT can:
- Evaluate your financial situation.
- Discuss strategies to avoid further debt accumulation.
- Help you explore options like budgeting, credit counseling, or legal debt relief solutions.
Being proactive can prevent costly mistakes, like cashing out RRSPs to pay debts that might have been discharged in Bankruptcy. Remember, RRSPs are protected in a Bankruptcy, and consulting with an LIT can help you preserve these valuable assets.
Life is unpredictable, but smart financial habits can help you stay in control. If debt feels overwhelming, don’t wait—book a free consultation with LCTaylor today
Leigh C. Taylor, LIT
