How to create a debt repayment plan

Why does a written plan help?

Debt feels most overwhelming when it is vague, a jumble of balances, dates and worries with no clear shape. Writing a plan turns that into something concrete. You know exactly what you owe, in what order you will tackle it, how much you will pay each month and roughly when you will be clear. That clarity lowers the stress and, just as importantly, makes it far easier to stay on track.

A good plan is realistic rather than ambitious. One built on payments you cannot sustain will collapse at the first difficult month. The aim is a plan you can actually follow, adjusted as your circumstances change. It does not need to be elaborate, and it does not need special software. What it needs is to be honest about the numbers and simple enough that you will keep using it.

The five steps to build your plan

Work through these in order. The budget comes first because every later step depends on knowing how much you can realistically put towards your debts each month. If you are not sure where the money goes, track your spending for a few weeks before you set a figure.

Choosing a repayment strategy

Once you can see all your debts, decide the order to tackle them. The two most common strategies both involve paying the minimum on every debt while putting any surplus towards a single target:

• The avalanche: target the highest interest rate first. This usually costs the least in interest overall, because you clear the most expensive debt soonest.
• The snowball: target the smallest balance first. Clearing whole debts quickly builds momentum and motivation, which helps many people stay committed.

There is no universally right answer. The avalanche tends to be cheaper, the snowball tends to be easier to maintain. If motivation is your main obstacle, the snowball may serve you better even at a slightly higher cost. Our guide on how to reduce credit card debt explores both in the context of cards specifically.

How much should you repay each month?

The amount you commit to repaying should come from your budget, not from optimism. Overcommitting is a common mistake. A plan that leaves nothing for unexpected costs tends to break, and a broken plan is demoralising. Aim for a figure you can maintain in an ordinary month, and treat anything extra, such as a bonus, a refund or a quiet month, as a welcome boost rather than part of the baseline.

It also helps to keep a small buffer for emergencies where you can, so a surprise bill does not force you back onto credit and undo your work. The debt-to-income ratio calculator can show how much of your income is already committed to debt, which is a useful check on how much room you realistically have.

Tracking your progress

A plan works best when you can see it working. Reviewing your balances each month shows the debts shrinking, which is motivating, and flags any that are not moving as expected. Tracking also catches problems early, a payment that slipped or a balance creeping up, so you can act before they grow.

Keep it simple. A notebook, a spreadsheet or a budgeting app all work. The point is consistency, not sophistication. When your circumstances change, whether a pay rise, a new expense or a cleared debt, update the plan so it keeps reflecting reality. If you are thinking of bringing debts together as part of your plan, weigh it against the other routes on the alternatives to debt consolidation page before deciding.

When should you get free help?

If the numbers simply do not add up, in other words if your essential outgoings and minimum debt payments come to more than your income, then no amount of budgeting will close the gap on its own. That is the moment to seek help. Free debt advisers can look at your whole situation and set out every option, including solutions a self-made plan cannot reach, without charging you or pushing a product.

Frequently asked questions