How to make a debt payoff plan

Resources · Paying off debt · 5 min read Starting out

Key points

• A debt payoff plan answers three questions: how much each month, which debt first, and when you’ll finish.
• Start with a full list of debts, then set one total monthly amount.
• Choose an order for any extra money, then map when each debt should clear.
• Check in monthly and adjust when life changes.

What a debt payoff plan is

A debt payoff plan is your debts written down, with the total you’ll pay each month, the order you’ll clear them in, and the month each one should be gone. That’s all. But it does something powerful. It turns “I need to get out of debt” into dates you can actually track.

Five steps gets you there.

Step 1: List every debt

Write down each debt with these four details:

• The current balance
• The annual interest rate
• The minimum or required monthly payment
• The due date

Put everything on it. Cards, store cards, personal loans, car loans, buy now pay later plans, money you owe family. If you leave one off because it’s embarrassing, the plan is wrong from day one. Listing every debt you owe goes through this in detail.

Step 2: Set one total monthly amount

Add up all the minimums. That’s the least you can pay without falling behind.

Now decide how much you can put toward debt in total each month. The gap between that number and the minimums is your “extra”. Even a small extra matters, because it’s the part that speeds everything up.

Choose a figure you can keep paying through ordinary, boring months, not just good ones. Finding your extra each month has practical ways to dig it up.

Step 3: Choose an order

Every month, pay the minimum on every debt. Then send the extra to one target debt. When that debt’s cleared, its whole payment moves on to the next target. This is called rolling the payment, and it’s why the plan picks up speed over time. See rolling a paid-off debt’s payment.

There are two common orders. Going highest interest rate first usually means the lowest total interest. Going smallest balance first usually gets you your first cleared debt sooner. Some people mix the two, knocking off one tiny balance first and then switching to the highest rate. Which one fits depends on what keeps you going.

Step 4: Map out the dates in your debt payoff plan

This is where the plan gets real. Work out the month each debt should be paid off, and the month you’ll be debt-free.

A worked example

Here are three debts. The same maths works in any currency.

The required payments add up to $400. Say the plan is $550 a month, which leaves $150 extra.

Assumptions: interest charged monthly at the yearly rate ÷ 12 on the balance before each payment, the minimums stay fixed, no new borrowing, and the last payment on each debt is whatever clears it.

With the $150 extra, either order clears everything in month 28 instead of month 54. Highest rate first saves $101.99 more in interest. Smallest balance first clears a debt 10 months sooner. And both save over $2,000 compared with paying only the minimums. That’s the real headline.

Write down the dates for whichever order you pick. Those are your milestones.

Step 5: Check in and adjust

A plan isn’t carved in stone. Once a month, update each balance and see whether you’re on track.

Life will give you reasons to change it. If your income goes up, you might raise the monthly amount. If it drops, you might need to lower it for a while, and that’s fine. A lump sum dropped onto the target debt can pull every date forward. A promotional rate ending might change which debt you target next.

And if something goes properly wrong and you can’t cover the minimums, free debt help is confidential and available in many countries.

Tips that help a plan last

Keep the whole thing on one page or one screen, so checking it takes seconds. Set up automatic minimum payments if your accounts allow it, so nothing slips. Hold a small emergency buffer so a surprise bill doesn’t end up back on a card.

And when a debt is cleared, mark it. Clearly. You earned that. Staying motivated on a long payoff has more ideas.

Common questions

What should a debt payoff plan include?

Every debt with its balance, rate and minimum. Your total monthly payment. The order you’ll pay the debts off in. And the month you expect each one to be cleared.

Which debt should I pay off first?

That depends on what matters more to you. Highest rate first usually costs the least interest. Smallest balance first usually gets a debt off your list sooner.

How often should I update my plan?

Many people check once a month, after payments go out. Update it any time your income, rates or debts change.

Try it

Enter your debts and monthly budget to find your Freedom Date and see the month each debt could be cleared. To work out the monthly amount itself, try the budget calculator.

General information only, not financial advice. Your situation is your own.