As a single parent, managing debt on one income while caring for your children creates unique financial pressures. When you’re juggling childcare costs, housing expenses, and daily necessities, it’s easy for debt to slowly accumulate as you rely on credit to cover shortfalls.

At Hoyes Michalos, we understand these challenges – our bankruptcy study shows that almost 1 in 5 Canadian insolvencies are filed by single parents, increasing to 1 in 4 for female debtors:

91% have overwhelming credit card debt, with an average balance of $13,500
30% are still paying off student loans more than seven years after graduation
40% struggle with tax debt
50% have at least one outstanding payday loan

Do these situations or warning signs sound familiar? You are not alone. With the right strategy and support, you can take control of your debt and build financial stability for your family. You can follow these steps on your own, or with the assistance of a Licensed Insolvency Trustee.

Table of Contents

Step 1: Complete A Debt Assessment

When dealing with debt you need a clear picture of your financial situation before you can make a plan to move forward. Begin by making a list of all of your debts. For each debt, write down:

The total amount you owe
Your monthly payment amount
The interest rate you’re paying
When payments are due

Include all your debts including credit cards, car loans, lines of credit, personal loans, student loans, payday loans, buy now, pay later (BNPL) loans, loans to family and friends, tax debts and any outstanding bill payments.

If you are overwhelmed, our team of Licensed Insolvency Trustees can help review your debt situation and provide advice on how to move forward.

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Step 2: Review Your Budget

Your budget needs to be more than just numbers on a page – it needs to be a practical tool that helps you manage your money and reduce your debt.

Start by calculating how much money you can put toward debt repayment each month. Add up all your sources of income – your take-home pay, child support payments, and any government benefits you receive. Then subtract your essential monthly expenses. This calculation gives you a clear picture of how much money you currently have available for debt repayment.

Next review your spending for possible savings, focusing first on your fixed expenses – these are the bills that stay roughly the same each month, like rent, car payments, and childcare. These expenses typically consume the largest portion of your income and may be relatively inflexible in the short term. However, you can often find savings by negotiating better rates on services like insurance or phone plans.

Your variable expenses offer more immediate opportunities to free up money for debt repayment. Grocery spending is often one of the largest flexible expenses in a single-parent household. Using price-matching apps and planning meals around sales can create significant savings without compromising your family’s nutrition. Similarly, small changes in utility usage can add up to meaningful reductions in your monthly bills.

The key to making your budget work long-term is to be realistic about your needs while finding sustainable ways to reduce expenses. Don’t try to cut everything at once – focus on making one or two changes each month. This approach helps you build new financial habits that stick, freeing up more money to tackle your debt faster.

Step 3: Choose the Right Debt Repayment Strategy

Once you have your budget, you need to choose a debt reduction strategy that works for your situation. This includes considering DIY repayment options as well as potential government debt forgiveness programs.

Snowball vs Avalanche Debt Reduction

If you’re carrying multiple debts, you have two proven repayment strategies to consider: the avalanche method and the snowball method. The avalanche method focuses on paying off your highest-interest debt first while maintaining minimum payments on other debts. This approach saves you the most money in interest charges over time. For example, if you’re carrying credit card debt at 19.99% and a personal loan at 12%, you’d direct any extra payments to the credit card first.

The snowball method takes a different approach – you pay off your smallest debt first, regardless of interest rate. While this method might cost you more in interest, it can provide quick wins that keep you motivated. You might find this method particularly helpful if you’re feeling overwhelmed by multiple payment deadlines each month. Each debt you eliminate reduces your stress and simplifies your monthly budget.

Debt Consolidation Loan

If you’re struggling to make progress with either method, debt consolidation might be worth exploring. A debt consolidation loan combines all your debts into a single loan, ideally at a lower interest rate than you’re currently paying. This approach gives you one monthly payment to manage and can reduce your overall interest costs. However, be cautious about consolidation loans with high interest rates or fees – they may not actually improve your financial situation.

Credit Counselling

When DIY methods aren’t enough to handle your debt load, it’s time to consider professional debt relief options. Credit counselling provides expert advice on managing your debts and can help you set up a debt management plan. Under this plan, a credit counsellor works with your creditors to potentially reduce interest rates and combine your debts into a single monthly payment. While this approach helps many people, it requires you to repay your debts in full.

Consumer Proposals

A consumer proposal offers more substantial debt relief when you can’t afford to repay everything you owe. This legal arrangement, administered by a Licensed Insolvency Trustee, allows you to offer your creditors a percentage of what you owe, often reducing your total debt by up to 70%. You make one monthly payment for up to five years, and your creditors can’t charge additional interest or continue collection actions. A consumer proposal also protects your assets, including your home and car, making it an attractive option if you have equity to protect.

Bankruptcy as a Fresh Start

Bankruptcy is the most serious debt solution but can provide a fresh start when other options aren’t feasible. While bankruptcy eliminates most unsecured debts, it does affect your credit rating and may require you to surrender certain assets. However, you can usually complete a first bankruptcy in 9 to 21 months, making it the fastest route to debt freedom in severe situations.

The key to choosing the right strategy is being honest about your financial situation. If you can afford to repay your debts in full through careful budgeting or consolidation, start there. If you’re struggling to make minimum payments or using credit to cover basic expenses, seek professional help sooner rather than later. As Licensed Insolvency Trustees, we can review your situation and help you understand all your options through a free, confidential consultation.

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Step 4: Smart Debt Management Tips

Once you have your debt under control, your last step is to avoid future debt. Here are some tips that can help you avoid debt as a single parent:

Build Your Emergency Fund

The most important step in breaking the debt cycle is preparing for unexpected expenses. Without savings, you’re just one car repair or medical expense away from more debt. Start small – aim to set aside just $10 or $20 from each paycheque. While this might seem insignificant, having even $500 saved can prevent you from turning to high-interest credit cards or payday loans when emergencies strike. Keep this money completely separate from your regular bank account – consider opening a free savings account at a different bank to make it less tempting to dip into these funds.

Avoid the Payday Loan Trap

Payday loans are one of the most expensive forms of borrowing, with interest rates often exceeding 400% annually. Taking one payday loan frequently leads to taking another to pay off the first, creating a devastating debt spiral. If you already have payday loans, break free by speaking with a Licensed Insolvency Trustee immediately – both consumer proposals and bankruptcy can eliminate payday loan debt and stop the cycle. For immediate cash needs, investigate alternatives like employee advances, local emergency assistance programs, or small loans from credit unions. If you’re considering a payday loan to cover regular expenses like rent or groceries, this is a clear warning sign that you need professional debt help to review all your options.

Never Skip Minimum Payments

While paying only minimums isn’t a long-term solution, making at least the minimum payment on every debt is crucial to prevent serious consequences. Missing payments will not only harm your credit score it can trigger collection actions including a wage garnishment. If you’re struggling to make your minimum payments, contact a Licensed Insolvency Trustee about debt relief options.

Make the Most of Government Benefits

As a single parent, several government programs can provide additional income to help manage your debt. Here are the key benefits you should ensure you’re receiving:

Canada Child Benefit (CCB): Monthly tax-free payments for children under 18
GST/HST Credit: Quarterly payments based on income
Climate Action Incentive Payment: Includes an additional 50% for single parents
Canada Workers Benefit: Extra support for low-income working parents
Eligible Dependent Tax Credit: Available to single parents
Child Care Expense Deduction: Can significantly reduce your taxable income

Don’t miss out on expense-reduction programs either. The Ontario Electricity Support Program and Canada Housing Benefit can help with utilities and rent, while childcare costs might be reduced through the national $10-a-day program and provincial subsidies. Healthcare support is available through provincial drug benefits and programs like Healthy Smiles Ontario for dental care.

When filing your taxes, remember to claim key deductions like the Eligible Dependent Credit, child care expenses, and medical expenses. Filing on time is crucial as most benefits are automatically calculated from your tax return.

Use Your Tax Refund Strategically

When you receive your tax refund, resist the urge to spend it on non-essentials. Instead, use this annual windfall strategically: put half toward your emergency fund and half toward your highest-interest debt. If you’re expecting a significant refund, consider adjusting your tax deductions at work to receive more money throughout the year rather than waiting for a refund – this can help prevent reliance on credit for monthly expenses.

Managing Debt Collection Calls

If you’re receiving collection calls, know your rights. Collectors cannot contact you outside of 7 am to 9 pm, harass you or your family, or discuss your debt with anyone but you and your authorized representatives. Keep a log of all calls and request that collectors communicate in writing only. If you’re facing aggressive collection tactics, contact your provincial consumer protection office for assistance.

If you can’t pay your debts, you can get immediate creditor protection by working with a Licensed Insolvency Trustee. The moment you file either a consumer proposal or bankruptcy, you receive legal protection from your creditors. Collection calls must stop – by law. Wage garnishments are halted immediately. Any legal actions against you must cease, and interest on your debts stops accumulating.

When to Get Debt Help

Being strategic about debt management isn’t just about paying bills – it’s about creating a stable financial foundation for your family. If you find these strategies aren’t enough to get your debt under control, remember that seeking professional help isn’t a sign of failure – it’s often the first step toward real financial recovery. Contact us for a free consultation to review your situation and discuss which debt relief options might work best for you and your family.

At Hoyes Michalos, we’ve helped thousands of single parents find debt relief solutions that work for their families. We understand the unique challenges you face, and we’re here to help you create a better financial future for you and your children. Your first consultation is free and confidential. We’ll review your situation, explain all your options, and help you make an informed decision about your next steps. You don’t have to figure this out alone – contact us today to learn how we can help you get back on track.

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Debt Help for Single Parents: Understanding Your Options