The financial mistakes people make before seeking debt help

Debt problems rarely appear overnight. They tend to develop gradually through a series of well-intentioned decisions made while trying to stay afloat: a credit card is used to cover an unexpected expense; a savings account is tapped to make a payment; a tax refund is expected to solve the problem next month. Each decision can seem reasonable in isolation, but over time these temporary fixes can make debt harder to manage. Plus, they can limit your available options going forward. 

If you’re worried about debt, recognizing the warning signs early on can help you avoid unnecessary stress, interest costs, and long-term financial consequences. Mike Beregon, Credit Counsellor & Client Services Manager at Credit Canada, underlines the importance of acting quickly. “Feeling overwhelmed about your financial situation is completely normal—but it’s those who take action who realize that difficult decision became life changing”, says Bergeron. 

Mistake #1: Using debt to pay off debt

When money is tight, it’s normal to look for ways to create breathing room. One of the easiest ways to do that is to start moving debt around. That can look like:

Using one credit card to make payments on another

Taking a cash advance to cover bills

Opening a balance transfer card (without a repayment strategy)

Using buy now, pay later services to pay for everyday essentials

The goal is usually to buy time, but the problem is that the underlying debt often remains unchanged at best. In many cases, the total debt load actually increases as interest charges and fees from new borrowing accumulate. 

While things like balance transfers and promotional offers can be useful tools when they’re part of a structured debt repayment plan, moving debt without addressing the root cause can give the illusion of progress, while total debt actually grows. “Managing debt without addressing the root cause is like mopping up water while the tap is still running”, says Bergeron. 

Mistake #2: Only making minimum payments

Making the minimum payment keeps your account in good standing, but it does very little to reduce your overall debt. Minimum payments can create the illusion of control, while the balance declines far more slowly than most people expect. 

For example, a $2,000 credit card balance at an 18% interest rate can take nearly four years to repay if you only make the minimum payments (assuming a typical payment of $60 per month) according to the Financial Consumer Agency of Canada. Over that period, the interest charges alone would amount to almost $800, though this could be higher depending on how your card issuer calculates the minimum payment.

If you’re only making minimum payments right now, creating a clear spending plan can help identify opportunities to put more toward your debt each month. Credit Canada’s free budget planner is a great place to start. 

Mistake #3: Draining emergency savings

Unexpected expenses such as vehicle repairs, medical costs, home maintenance, or temporary income disruptions can happen to anyone. Your savings provide a financial cushion if it happens to you.

However, using your emergency fund to cover recurring monthly expenses like groceries, rent, or utilities signals a structural budgeting issue rather than a temporary setback.

While using savings may prevent additional borrowing in the short term, it can also leave you financially vulnerable. Once those funds are gone, you’re taking a risk and hoping that you can rebuild your savings before the next unexpected expense comes. 

A shrinking emergency fund isn’t necessarily a failure, but it may be a sign that it’s time to take a closer look at your overall financial situation.

Mistake #4: Cashing out investments or retirement savings

When debt problems start to grow, your long-term savings can look like an easy solution. That could mean:

Withdrawing funds from an RRSP

Liquidating a TFSA

Selling investments intended for future goals

Cashing out retirement savings early

While these moves can provide you with much needed cash flow, they often come with significant consequences. For example, RRSP withdrawals may trigger taxes and permanently reduce your retirement savings. Selling investments can interrupt years of compound growth.

In many situations, the debt itself isn’t the root problem. The real issue may be a gap between income and expenses, ongoing reliance on credit, or a spending plan that no longer works for you. Without addressing those underlying factors, cashing out savings is just another quick fix, not a lasting solution.

Mistake #5: Ignoring early warning signs

Debt problems tend to worsen gradually rather than suddenly, and recent data from Equifax Canada shows that many households are already seeing rising signs of financial strain through higher delinquency levels.