Average debt in Canada: How to manage your debt and keep investing

If you’ve ever worried about debt, you’re not alone. Most Canadians carry some form of debt, and it’s a normal part of life, whether it’s a mortgage, a car loan or a credit-card balance. The truth is that debt is common. What matters most is having a plan that feels doable and helps keep your future on track.

Find out how your debt compares to the average Canadian and get practical ideas to pay down your debt while continuing to invest in your financial future.

How much debt does the average Canadian have?

Let’s start with the big picture. Canadians owe about $2.56 trillion in total consumer debt. Most of that is tied to mortgages, which are generally considered good debt because it can increase your net worth. When you remove mortgages, the average Canadian has $22,321 in non-mortgage debt, which includes things like credit cards, car loans and lines of credit.

So, if you have debt, you’re in good company.

What is a debt-to-income ratio and why should you care?

Your debt-to-income ratio (DTI) shows how much debt you owe compared to your disposable income. This number is important because lenders use it to determine which loans and other financial products you qualify for, and at what interest rate.

You can calculate your DTI by taking your total monthly debt obligations (credit cards, car loans, mortgage payments, etc.), dividing that by your monthly income and then multiplying by 100 to get a percentage.

Currently, Canadians have an average DTI of 176.7 per cent, which means households owe $1.77 for every dollar of disposable income. This means that, on average, debt is growing faster than income for most people.

How does your debt compare?

Debt looks different for everyone, and it often reflects where you are in life. Buying a first home, raising kids or paying for education can all increase what you owe. Later in life, those balances usually shrink as mortgages get paid down and expenses ease. So, if your debt feels high right now, chances are it’s tied to a stage of life that many Canadians experience.

Here’s what the averages look like by age:

Average total debt (mortgage and non-mortgage)¹:

Average non-mortgage debt²:

Knowing how your debt stacks up can help give you context, but success isn’t about comparison. It’s about building a plan that works for you and sticking with it.

Can you pay down debt and keep investing at the same time?

Absolutely: it is possible to manage debt while saving for the future. And this is where prioritization and perspective matter most. The tension between paying down debt and investing isn’t just about the numbers; it’s about striking a balance that works for you and your goals.

How to decide: Should you pay down debt or invest?

When you’re juggling long-term goals and debt, the right answer isn’t always clear. How you choose to tackle debt and investing depends on your unique circumstances and goals. Here are some factors to consider when deciding how you should allocate your money:

• Interest rates vs. expected returns: If your debt carries high interest rates, such as credit cards, prioritizing paying down those debts should likely be your first priority. But if your debt is low-interest, like student loans or mortgages, you may choose to make minimum payments while allocating extra money towards your investment goals, depending on what they are and when you need to access your money.
• Risk tolerance: If you have a low risk tolerance, paying off debt may be more appealing because it can reduce your financial stress. However, if your risk tolerance is higher, you may be more comfortable investing more now and watching your savings grow over time. There’s also a middle ground here, where you can make the decision to put a portion of your budget towards both.
• Time horizon: What are your financial goals and when will you need to access your money? If you have long-term goals, such as retirement, starting to invest now can make a big difference in the long run. If you’re saving for a short-term goal, such as a down payment in the next few years, paying down debt, combined with low-risk investments or a high-yield savings account, may be the way to go.
• Employer benefits: If your employer offers matching RRSP contributions, it may be worthwhile investing enough to capture the full match, even if you’re focused on debt repayment. This is essentially free money that can accelerate your long-term savings.
• Financial stress and security: Financial decisions aren’t just about numbers. If your debt is causing you stress, prioritizing repayment may help you feel more financially secure. On the other hand, seeing your investments grow can also provide reassurance for the future.

Ultimately, it’s important for you to weigh the tradeoffs and decide what will serve you best, both now and in the future.

Strategies to invest while managing debt

Many people find success by splitting their efforts between making regular debt payments and investing modest amounts. In fact, investing has the potential to help you pay down your debt further. Here are some practical strategies to help you manage both:

• Invest early and consistently: Even modest contributions can grow over time thanks to compound growth. By investing while paying down your debt, you have time on your side, which can be a big advantage when it comes to saving for your long-term goals. Plus, matching RRSP contributions from your employer can help you strike a balance between investing and debt repayment; your contribution doubles without you having to foot the entire bill, so you can put more toward your debt.

    Tip: Use our investment growth calculator to see your potential.

• Automate contributions and payments: By setting up monthly contributions to an RRSP or TFSA, you can slowly work toward your goals and let compounding do the heavy lifting. You can also automate credit-card payments, helping you chip away at high-interest balances without extra effort. Automation allows you to take some of the pressure off yourself, so you don’t have to think about your payments every month.
• Use RRSP tax refunds for a win-win: RRSP contributions can help you reduce your taxable income and keep more of your money. If you receive a tax refund, you can direct some or all of it to debt repayment, especially any higher interest balances. With an RRSP, you can invest while reducing your debt at the same time.
• Build a flexible TFSA emergency fund: Life happens. With an emergency fund, you can prevent unexpected costs from turning into new, high-interest debt. A TFSA is ideal for an emergency fund, since withdrawals are tax-free. Any investment income earned in the account also grows tax-free, helping to boost your savings.
• Plan ahead for windfalls: Decide in advance how to split a bonus, tax refund or inheritance between debts and investments, in addition to any purchases you may be eyeing. Having a plan helps you avoid impulsive spending, potentially taking on more debt, while also putting money toward your goals.
• Consider consolidation, but do the math: A consolidation loan can make payments easier and lower your interest rates. Before you commit, compare fees and the total cost to make sure it saves you money. Lowering your interest rates can help ease the tension between paying down debt and investing for your future, so you don’t have to choose one over the other.  

If you decide to invest while managing debt, you may consider solutions that are low-cost, diversified and straightforward. One option to consider is Fidelity’s All-in-One ETFs, which provide access to a diversified basket of assets, aim to help manage risk and potentially generate greater returns than a standard savings account.

Pairing your Fidelity All-in-One ETF with registered accounts such as RRSPs and TFSAs can help you make the most of tax advantages while you work on paying down debt.

The bottom line

The goal isn’t perfection, it’s progress. By understanding your priorities and the trade-offs involved, you can create a plan that feels right for you. Whether you choose to focus on debt, investing or a mix of both, small, consistent steps can help move you closer to your goals.

It can also be helpful to work with a financial advisor, who can help create a plan tailored to your unique financial situation and goals. Remember, debt is common and with the right strategies, you can manage it while staying on track for your future.