The 50/30/20 Rule: A Budgeting Guide for Canadians in Debt

Key Takeaways

• The 50/30/20 budgeting rule helps Canadians manage money by dividing after-tax income into needs (50%), wants (30%), and savings/debt repayment (20%).

• If your debt payments exceed 20% of your income, it may be a sign that your debt is unmanageable.

• Budgeting alone may not be enough—especially if you're relying on credit to cover essentials or missing payments.

• Canadians have access to both informal (credit counselling, debt consolidation) and formal (consumer proposal, bankruptcy) debt relief options.

• Licensed Insolvency Trustees, like those at The Litvack Group, are the only professionals legally authorized to file consumer proposals or bankruptcies and can provide unbiased, customized debt solutions.

• A free consultation with a Licensed Insolvency Trustee can help you understand your options and start your journey toward financial stability.

Introduction: Budgeting When You’re Already Drowning in Debt

Let’s be honest: budgeting advice often feels out of touch when you're already behind on bills, juggling credit card payments, and dodging collection calls. As a Licensed Insolvency Trustee (LIT), I speak with Canadians every day who are overwhelmed and unsure where to start.

You might be wondering, “What’s the point of budgeting if I can’t even cover my minimum payments?”

That’s a fair question. And it’s exactly why the 50/30/20 rule, a simple, flexible budgeting method, can be a powerful tool for Canadians who are in debt or recovering from a financial crisis. It helps you take back control, prioritize spending, and begin to carve out a path to stability.

And if budgeting alone isn’t enough? That’s where options like debt consolidation, consumer proposals, and bankruptcy come into play. But we’ll get to that.

What Is the 50/30/20 Rule?

The 50/30/20 rule is a budgeting framework that breaks down your after-tax income into three main spending categories:

• 50% – Needs: Essentials like rent, groceries, utilities, transportation, and minimum debt payments.

• 30% – Wants: Non-essentials like dining out, entertainment, hobbies, and subscriptions.

• 20% – Savings & Debt Repayment: Extra debt payments, emergency savings, RRSP/TFSA contributions, etc.

It's a guideline, not a strict formula, and that’s what makes it so useful—especially if your financial picture doesn’t fit into neat boxes.

Why This Rule Matters for Canadians in Debt

If you’re already carrying consumer debt, the 50/30/20 rule can help you:

• Identify overspending in non-essential areas.

• Prioritize debt repayment without cutting every joy out of your life.

• Visualize a balanced future beyond survival mode.

But let’s get real: if more than 50% of your income is going toward essentials and minimum debt payments, this budget may be hard to follow as-is. That’s not your failure; it’s a sign that your debt may no longer be manageable on your own.

Debt Is Growing and You’re Not Alone

In 2025, the average Canadian household is carrying over $21,000 in non-mortgage debt. With inflation, rising interest rates, and stagnant wages, more and more people are relying on credit to cover basic needs.

You may be:

• Using credit cards to pay for groceries or gas

• Falling behind on rent or car payments

• Getting collection calls about CRA debt or payday loans

It’s not a lack of willpower, it’s a systemic issue, and people across Canada—especially in provinces like Ontario—are feeling it.

How to Apply the 50/30/20 Rule When You’re in Debt

Step 1: Calculate Your After-Tax Income

This is your take-home pay—after income tax, CPP, EI, and other deductions.

If your income fluctuates (you’re self-employed or hourly), use a 3–6 month average.

Step 2: Break It Down

Here’s how it might look on a $3,500/month net income:

• 50% Needs: $1,750

• 30% Wants: $1,050

• 20% Savings/Debt: $700

If your current debt payments are more than $700/month, that 20% rule breaks down—and that’s where adjustments or interventions are needed.

Step 3: Adjust for Reality

If your minimum payments eat up 30% or more of your income, you may need to:

• Cut back in the “wants” category

• Reassess fixed expenses (e.g. move to a cheaper apartment)

• Seek formal debt help (more on that below)

Budgeting Alone May Not Be Enough

Let’s be very clear: no amount of budgeting will solve unmanageable debt.

If your income doesn’t cover your basic needs and minimum payments, you're likely in what's called a structural debt position—your debt is growing faster than you can pay it off.

Signs That Budgeting Isn’t Enough

• You’re using one credit card to pay off another

• You’ve missed payments for 2+ months

• You can only make interest payments, not reduce the balance

• You’ve considered payday loans to cover bills

This is when it’s time to look at debt relief solutions and ideally, talk to a Licensed Insolvency Trustee.

Informal Debt Relief Options You Can Try First

Before turning to formal processes, some people try informal strategies to manage debt. These include:

1. Debt Snowball or Avalanche Methods

These are DIY repayment strategies focused on either the smallest balances (snowball) or highest interest rates (avalanche). They work well if your income covers your expenses and debt.

2. Credit Counselling or Debt Management Plans (DMPs)

Offered by non-profit credit counselling agencies, DMPs consolidate unsecured debt into a single payment, but you repay 100% of what you owe over 3–5 years. Creditors must agree to the plan.

3. Debt Consolidation Loans

If your credit is still good, you may qualify for a bank loan to pay off higher-interest debts. This works if:

• Your income is stable

• You can qualify at today’s interest rates

• You don’t add new debt while repaying the loan

If these don’t work or you’ve already tried them with no success, it’s time to consider formal debt relief.

Formal Debt Relief Options in Canada

These are legally binding solutions overseen by Licensed Insolvency Trustees, regulated by the federal government.

1. Consumer Proposal

This is the #1 alternative to bankruptcy in Canada. A consumer proposal allows you to:

• Settle your unsecured debts for less (often 30–50% of what you owe)

• Stop all interest charges

• Make one fixed monthly payment over up to 5 years

• Stop wage garnishments, collection calls, and legal actions

Best of all: You keep your assets including your home, car, and RRSPs in most cases.

2. Personal Bankruptcy

Bankruptcy is a legal process to eliminate most debts if you can’t afford to repay them.

While it does have more serious credit implications, it may be the fastest route to a financial reset if you have no surplus income or non-exempt assets.

Why Work with a Licensed Insolvency Trustee (LIT)?

A Licensed Insolvency Trustee is the only professional in Canada legally authorized to file consumer proposals and bankruptcies.

We’re federally regulated, neutral, and here to explain all your options—not just the ones that benefit us.

When You Meet with The Litvack Group, You Can Expect:

• No pressure, no judgment. Just facts and options

• Free, confidential consultations—always

• A plan tailored to your income, assets, and goals

• Ongoing support throughout your debt-free journey

We believe in empowering you, not shaming you. You deserve help that works.

Success Story: How Jamie Used the 50/30/20 Rule to Rebuild

Jamie, a 38-year-old single parent in Mississauga, came to us with $40,000 in unsecured debt and was struggling to keep up with her needs and debt repayments.

Her income covered rent, food and utilities, but after paying her minimum debt payments, there was nothing left for her and her child to spend on any of their wants.

We filed a consumer proposal that reduced her debt to $15,600 over 5 years. That lowered her monthly payments from $1,100 to $260.

With her new breathing room, Jamie began using the 50/30/20 rule to stay on track:

• 50% went to rent, groceries, and proposal payments

• 30% gave her room for kids' activities and some fun

• 20% went to rebuilding emergency savings

Now she's budgeting with purpose and finally seeing a light at the end of the tunnel.

Final Thoughts: A Budgeting Rule Can Start the Journey but It’s Not the Whole Solution

The 50/30/20 rule is a great starting point. It gives structure for spending and shows you where your money is going.

But if debt overwhelms your budget, it’s time to take the next step.

Take the First Step Today

Don’t wait for the next missed payment or collection call.

If you're in Ontario and struggling with debt, book a free, confidential consultation with a Licensed Insolvency Trustee at the Litvack Group.

We’ll help you understand your options, rebuild your budget, and get your financial life back on track.or work with a professional, you have options and support at your fingertips.

Disclaimer:

This article is intended for informational purposes only and does not constitute legal or financial advice. For personalized assistance, contact a Licensed Insolvency Trustee in your area.