Navigate Up
Sign In
BDO Debt Help > Home > Resources > 5-Step Plan

5-Step Plan

5-Step Plan to help reduce debt in Canada

Are you feeling overwhelmed with debt? Worried about how much you are spending on interest each month?
Lowering the amount of debt you carry can significantly improve your credit profile, reduce loan rates and save you a lot in interest payments. It just takes a few steps and a little dedication to take control of your debt.
Step 1: Assess your current situation
  • Collect all of your account, loan and credit information and carefully review the records
  • Write down the monthly payment, debt amount, interest rate and term of each debt on a sheet of paper
  • Write down your total monthly income and list your estimated monthly expenses
  • Estimate your assets, such as home equity, your savings, value of your car, etc.
  • Order your credit profile and credit score online to get a baseline for tracking your improvements at or call 1 800 465 7166
Step 2: Prepare a budget
  • Calculate your monthly spending and find a way to reduce your expenses so you save 10% of your income each month and apply these savings toward paying off your debts (small economies can mean huge savings when set aside each month, e.g. cutting back on one lunch out per week can save approximately $25 to $50 per month)
  • Use the following “accelerator margin” formula to prioritize what to pay first.


Accelerator Margin Formula

    • Create a list of all of your debts and place the highest interest account at the top of your list
    • Each month, make the current minimum payment on each debt, except Debt #1 to which you apply about 10% of your monthly income, then repeat until Debt #1 is paid
    • When the first debt is paid, repeat the process by paying the minimum monthly payment on all bills except Debt #2 (pay the 10% amount plus the amount you previously paid for Debt #1 and continue until Debt #2 is paid)
    • Begin eliminating Debt # 3 with your 10% savings and the amount you owed on former debts and repeat this cycle until all debts are paid off
Step 3: Negotiate and consolidate
  • While you are working on reducing your balances with the “accelerator margin” schedule, try lowering the interest rates on some of the highest interest debts
  • Call your creditors and negotiate a rate reduction or consider moving your balances to less expensive credit cards (this may cause a slight drop in your credit score if you open a new credit account)
  • Take this opportunity to see if you have any account balances above 50% of the available line of credit; high balances can harm your credit score, but you can help by transferring some of the debts to different accounts
Step 4: Refinance
  • After taking control of your credit card and small loan debts, look at your major loans and assess if it would make sense to refinance your mortgage or auto loan; reducing your interest rate by a few points can potentially save you hundreds each month
  • Speak to your lender about a home equity loan; you can apply this toward reducing your high interest debts
Step 5: Create a payment plan and stick to it
  • Create a payment calendar with the due dates and the payment amounts you just calculated
  • Sign up for automatic bill payment through your bank or register for online payments to keep you on schedule
  • Track improvements in your credit profile by registering for a credit monitoring product
  • Keep an emergency fund so that you do not fall back on credit if an issue arises
  • Freeze all credit cards so you are less tempted to use them
  • Set goals for reducing your debts and do not forget to celebrate when you reach a major debt-reduction milestone!


Call your local office

With over 100 offices, we are located where you need us to be. Call your local office today.

BDO Canada Limited is an affiliate of BDO Canada LLP. BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
BDO is the brand name for the BDO network and for each of the BDO Member Firms.