CreditCards.ca asked Patricia White, executive director of Credit Counselling Canada, to share practical insights on how to rebound from severe money challenges. Credit Counselling Canada is a unique, nonprofit national association that governs accredited member agencies in every Canadian province.

Patricia White

Patricia responded with a two-part, ten-step action plan.

CreditCards.ca: What is the best way for Canadians to rebuild their credit after surviving a financial crisis?

Patricia White: Step one is to manage your chequing account carefully to avoid NSF (Not Sufficient Funds) cheques or overdrafts, and pay your monthly bills on time.

Step two is to start or restart a savings program with your financial institution. Making a regular monthly deposit to a savings account will demonstrate that you are able to save and maintain the savings.

Step three is to maintain stability with employment and residence which indicates your dependability to a potential lender.

Step four is to use credit wisely going forward. You might consider a secured credit card or a small loan for something like a registered retirement savings plan where you repay the credit in the agreed upon timeframe. This creditor will provide information to the credit reporting agency of ‘1' rating or paid as agreed.

Step five is to exercise patience and discipline; recognize that it takes time to rebuild your credit rating after a financial crisis. By living within your means and carefully managing your affairs, you will regain your credit worthiness.

CreditCards.ca: As Canadians rebuild their credit ratings, what are the steps for remaining debt free?

White: Not many people can manage without some debt such as a mortgage, a car loan or one credit card, but everyone should keep the following in mind.

Step six is to establish meaningful and realistic financial goals to help you stay on track. Step seven is to learn to separate needs from wants. With easy access to credit, your wants can become your needs if you are not careful. Step eight is to develop a balanced spending plan and budget that ensures all monthly and seasonal expenses are accounted for along with your savings goals.

Step nine is don't spend more than you have. If you find it necessary to use credit, make your payments on time and choose the right type of credit for the purpose. Step ten is to save for emergencies. The rule of thumb is to have from three to six months of expenses set aside.

CreditCards.ca: Do Credit Counselling Canada member agencies only service low-income earners? Do you also see any high earners get into financial trouble?

White: People can get into financial difficulty for various reasons and at different stages in their lives. Higher income earners can have the same issues as lower income earners such as loss or reduction of income, health issues, separation and divorce.

Financial literacy is not a skill that everyone has automatically. These skills are learned at different stages of life. Some people learn them in school or from parents. Others pick up information and new skills as needed, for example, a first home purchase, RRSP savings or other consumer decisions.

As the above ten steps show, we promote personal financial competency through the wise use of credit and personal debt reduction. 

See related: 3 scary 'bad credit' options you should avoid; Are you engaging in wishful thinking about debt?