Break Free of the Paycheque to Paycheque Trap

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Living paycheque to paycheque is an all-too-common problem for Canadians. If you are dealing with this difficult endeavour, you should read this guide to break free of the financial cycle. There are ways to get out of the trap, even when you’re living with debt.

The Struggle of Living Paycheque to Paycheque

What is living paycheque to paycheque? The moment that someone gets paid, they tackle all of the essentials in their budget like rent and bills. And then, as they tackle living expenses like groceries and gas, they watch the contents in their bank account dwindle. The stress and anxiety about their money grows as the numbers go down, sometimes hovering close to zero. They do this until the next payday when their account is re-filled. And then, they repeat the process. It’s a pattern: get the paycheque, make payments, panic until the next paycheque comes in, etc.

Unable to Pay for Emergencies

A survey by the Canadian Payroll Association found that approximately 47% of Canadians were living from paycheque to paycheque in 2017. Nearly half of the survey’s participants admitted that a delayed paycheque would be a serious obstacle, making it difficult for them to reach their financial obligations. Factors like steep living expenses and significant debt contributed to this delicate financial situation.

Almost half of Canadian households wouldn’t be able to pay their bills if they were $200 short on their paycheques — this means one unexpected cost could throw a massive wrench into their financial plans. A stalling car or an emergency trip to the dentist could make them flat broke, or worse, put them into debt.

When you don’t have any room in your budget to pay off unexpected costs, you’re going to turn to credit. One of the main issues with doing this is that credit builds interest. If it’s not paid off right away, it grows. And if you couldn’t afford to pay for the lump sum with your paycheque the month before, it’s not likely that you’ll be able to pay it off when the next one comes in. You will have to make small, incremental payments to get the burden down.

And the more credit card debt you have, the more money you have to take off of your earnings. This solution sets you up for a bigger problem. You have less money in your bank account, so now you have no choice but to turn to credit if another unexpected expense pops up. And then the debt management gets even harder. It’s a vicious cycle.

Credit is not necessarily the worst-case scenario. A lot of people desperate to make payments in a hurry will turn to predatory lenders. They will get payday loans with sky-high interest rates where even a small loan can balloon out of proportion. These are notoriously difficult to pay back and are a common cause of insolvency. If the loan can’t be repaid quickly, the cost could be worth more than a single paycheque. It’s unsustainable.

Living from paycheque to paycheque is a financially distressing situation because you feel like you have no chance to create savings for the sake of security and the likelihood of relying on debt is high.

Dealing with Consumer Debt

A large number of Canadians are in debt. According to the Canada Mortgage and Housing Corporation, Canadian household debt is at a record high — cities like Vancouver and Toronto are hit the hardest by this statistic. Residents are dealing with more debt because their monthly payments are rising, and their disposable incomes aren’t matching that growth. They turn to credit cards and lines of credit to solve this imbalance.

According to an Ipsos poll from 2017, the average Canadian owes $8539 in consumer debt — not related to their mortgage. The poll revealed that the generation with the most consumer debt appears to be Generation X (1961-1981), likely because they are at an age where they have more financial responsibilities. They’re paying for homes, cars, children and ailing parents at the same time.

People living with significant debt will have a harder time getting out of the paycheque to paycheque trap. Someone without debt can cut costs from their budget or bring in a little more income so that they can have some savings to rely on for the next month. Slowly but surely, they can create a sizeable financial cushion. They can use it for unexpected expenses and non-essential items without putting themselves in trouble.

Someone living with debt doesn’t have the room to do the same. Savings go straight to the creditors.  Whatever extra money is left in their budget will be used to chip away at that mountain of debt. They will be living paycheque to paycheque, no matter what their living expenses are.

How to Escape the Paycheque to Paycheque Trap

Living from paycheque to paycheque may feel like an endless cycle, but it is possible to break out of it. One way is to increase your income, either by getting a better-paying job or a second job. For many, this won’t be an option. Maybe you work too many hours already. Maybe you don’t have time to search for job opportunities, send out resumes and go out for interviews.

The other way that you can break out of the cycle is to get professional help. A Licensed Insolvency Trustee can offer expert assistance for budgeting, credit counselling, consumer proposals and bankruptcy. Find out which ones are appropriate for your financial circumstances.


The first thing that you have to do if you’re trying to plan for a debt free future is to learn effective budgeting. If you already have a budget, you should go over it again to see if it will help you reach your financial goals.

Start by visiting our section on “How To Budget,” access the budget worksheet and print it out. Then, fill out the brackets with a pencil. Start with fixed monthly costs like rent and mortgage payments. Add the minimum payments for credit card debt and loan repayments to this list. These shouldn’t be skipped.

Then, add variable monthly costs. These are things like utilities, gas, groceries or clothing. They’re necessary, but the numbers aren’t entirely fixed. They can be adjusted if need be.

And then, the last expense category is your “infrequent expenses.” These don’t come every month, but they’re important to account for. These are some of the infrequent expenses that you should make a note of:

  • Car insurance payments
  • Vehicle maintenance
  • Home maintenance
  • Home insurance payments
  • Taxes
  • Holidays
  • Celebrations (birthdays, weddings, baby showers, etc.)

After tallying your expenses, you have to measure it against your income. Instead of measuring the monthly income, multiply your earnings so that you can see how to fit in infrequent expenses into your budget. Check to see how much room you have. If you’ve been living from paycheque to paycheque, it will be very small.

When it looks like your earnings don’t suffice, you need to see how to trim your variable expenses. These are the costs that can be feasibly reduced:

  • Can you use coupons and discounts to save on groceries?
  • Can you practice energy-saving habits to cut down on utilities?
  • Can you buy clothing second hand, or save your shopping for sales only?
  • Can you avoid going to restaurants and ordering takeout for most of the month?
  • Can you use public transit instead of taxis and rideshare services?
  • Can you cut down trips to movie theatres, concerts and other entertainment venues?
  • Can you trim down gym membership costs by getting a discount or choosing to workout at home?
  • Can you cancel subscriptions to magazines, newspapers and services that you don’t need?

Some simple changes can give you more wiggle room in your budget. Those savings can help you whittle down your debt. When the debt is paid, you can use these same tips to build up a savings account and use the funds for other financial goals.

Credit Counselling Services

A licensed insolvency trustee will offer credit counselling services to help you improve your use of credit cards and lines of credit. Credit counselling focuses on debt management and finding the best methods to cut down large amounts of credit card debt. For instance, if you are carrying a balance on multiple credit cards, give the most attention to the card with the highest interest rates. That deficit will grow faster than the ones on the other cards.

Credit counselling can also focus on the recovery period so that you don’t jump back into debt right after paying it off. It’s easy to slip back into the cycle. The bankruptcy trustee can teach you the best uses for credit so that you can manage your spending. They show you how to use credit wisely to improve your credit score. The improvement can make certain financial milestones like renting an apartment, buying a house or buying a new vehicle a lot smoother.

Consumer Proposal

There are times when debt can feel insurmountable. The amount is too much for you to pay off with your income — even if you tried for years, you wouldn’t make a dent in the numbers. You’re getting calls from collection agencies. The interest keeps growing. You panic about money every minute of the day. You feel utterly trapped.

If this is the case, you may need to consider a consumer proposal. A consumer proposal is a potential solution for dealing with large amounts of unsecured credit. It’s an alternative to filing for bankruptcy. It’s essentially an agreement between a debtor (you) and your unsecured creditors. The agreement allows you to pay them a reduced amount of the debt you owe.

That amount is based on your income and what you can afford. The repayment period lasts for up to five years. Once that period is over and the payments have been made, it’s over. You can consider your unsecured debts dealt with. It can be used for credit card debt, lines of credit, payday loans, unpaid utility bills, or taxes owed to the Canada Revenue Agency (CRA).

A Licensed Insolvency Trustee goes over the consumer proposal process with you and acts as an intermediary between debtor and creditors. They will make sure that you honour the agreement by making the payments on time. They will also make sure that the creditors honour the agreement by halting any collection actions and penalties against you.


Filing for personal bankruptcy is another way to deal with insolvency. Being insolvent means that you are unable to pay your debts when they’re due and you do not have enough equity in your assets to cover them.

Some debts cannot be eliminated through a personal bankruptcy filing:

  • Child support
  • Alimony
  • Student loans
  • Court imposed fines
  • Fraudulent debt

The Licensed Insolvency Trustee will help you go over the options for bankruptcy versus consumer proposal with you before you make a decision. Certain factors automatically make bankruptcy an undesirable choice for certain debtors. For instance, filing personal bankruptcy could cause concerns for your professional organization or restrict your ability to be a director of a corporation. A consumer proposal will not carry that consequence.

A consumer proposal is favourable for debtors who have significant assets, such as homes and cars. For bankruptcy, there will be a settlement of many of your assets (there are exceptions) and disbursement to the creditors for the sake of relief. If you do not have too many significant assets, bankruptcy may not be as impactful.

Another difference between filing for a personal bankruptcy and filing for a consumer proposal is the length of time the decision stays on your credit report. A bankruptcy will stay on the report for 7 years if it’s your first filing. If it’s your second bankruptcy, it moves up to 14 years. A consumer proposal stays on the report for 3 years after it’s finished, though it may take up to 5 years to complete.

A licensed insolvency trustee can help you break free of the paycheque to paycheque trap. If you need a little help, you can use their budgeting advice and credit counselling services. And if you’re deeply in-debt and feel like there’s no way out, you can turn to them for assistance with a consumer proposal or bankruptcy.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt, call us at 1-844-962-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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