STEP 4: Debt Repayment Plan

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Making minimum payments because you don't know where to start is one of the worst mistakes you can make in attempting to eliminate your debt. If you often feel overwhelmed by your debt, are only making the minimum payments, and are seeing no results — then it's time to focus on creating your debt payoff plan. Creating a plan to pay off your debt is the most important step towards living debt free.

Figuring out the best way to pay off your debt can seem overwhelming at first, especially with all the debt consolidation and repayment schemes out there. A good debt payoff plan should contain the following information: 1) the debt you have to pay 2) the order you need to pay them, and 3) how much you need to pay to eliminate them.

With the above-mentioned strategies, your plan will not only be realistic to your lifestyle; it will fit within your personal budget.

Step #1: Make a Debt List

To create your plan, you need to list all the debts you owe, along with the remaining balance due. There are a couple of ways you can do this. If you don’t pay much attention to the debt you have, get a copy of your free credit score here.

Your credit report will provide you with your debt obligations from companies that report to all three major credit bureaus. *It should be noted that your credit report might not list all your accounts. Just to be sure you've accounted for everything, make sure to go through past statements from your creditors as well.

Use the FREE Debt List worksheet to write down the following:

1) who you owe,

2) the amount you owe,

3) the minimum payment for each debt obligation,

4) the interest rate (list from highest to lowest), and

5) your monthly due date.


Step #2: Figure Out Your Debt Priorities

In this step, you need to figure out what debt you want to focus on according to your priorities. You may decide to only focus on your “bad” debt.

Bad debt includes things like credit cards, personal loans and recreational vehicles. This type of debt will most likely have the highest interest rates as well.

There are a couple of different methods you can use when trying to figure out which debt you should tackle first. But before I tell you which one I prefer, let’s look at these two methods.

Snowball Method

The debt snowball method is a debt reduction strategy where you pay off debts in order of smallest to largest regardless of interest rate that rolls over the payments to the next bill until each balance is paid off.


When you start with the smallest balances first, you pay off those balances faster which will motivate you moving forward. Plus, with all your smaller debts gone, you will have extra cash flow to contribute towards larger debts.

Avalanche Method

Using this method, you sort your accounts, so you start paying down with the account that has the highest interest rate to lowest interest rate. You attack the higher interest debt first, regardless of the balance.  

Using this method makes more sense mathematically because you will pay less interest overall. By utilizing this method, you can some more in interest thus paying off your debt faster.

So now that I have provided you with the two most common methods to prioritize your debt, it is my opinion best way to pay down debt your debt is by using the Snowball Method.

I believe eliminating the smaller debts quickly, will motivate you as work towards tackling your larger debt.

Best Method?

The truth is, whichever method you choose, making the decision is really the most important thing. You have to choose the method that will help you stick to the task of becoming debt free.

So, if you optimizing your payments and saving interest is a priority, use the Avalanche Method. If you think paying off your smaller debts and getting those quick wins will keep you motivated, use the Snowball method.

Even though there is a strong argument for both methods, you always have to do what's best for you. In this case, there really is no right or wrong decision as long as you're committed to achieving debt freedom.

Step #4: Initiate Your Debt Repayment Plan

Now that you know how much you can pay towards your debt, it's time to put the plan into action. Review the budget you came up with in Step #2 (Creating A Solid Budget) and determine the amount you can use to apply to your outstanding debt. As a benefit, you have exclusive access to our awesome debt repayment plan generator that will provide you with a plan to pay off your debt 2x-3x faster…

Click here to access the Debt Payoff Calculator

This calculator helps you evaluate various strategies for paying off your debt. When one debt is paid off, the payment amount normally applied to that debt is now made available for use against another debt. You can also add an additional monthly payment to accelerate the payoff.

You can generate an easy to follow payment plan to help you eliminate your debt.

Just plug in your basic debt information that you compiled, and we will take care of the rest.

This free tool will let you create a debt payment plan using the powerful Debt Snowball or Debt Avalanche repayment methods. See how it works.

Click here to access the Debt Payoff Calculator

Step #5: Be All In

It's never enough to just put your plan into action. You have to review your debt payoff plan regularly.  It can take years to pay off larger debts, so make sure your plan changes with your circumstances is important. Anytime your financial situation changes (for example, a pay increase), update your budget and your debt repayment plan.

Don’t get discouraged if you make mistakes or run into setbacks. The most important thing you can do is pick yourself up and continue with your plan as soon as possible.

You will develop positive financial habits if you complete these financial steps consistently. Debt can be overwhelming, but having a plan in place will relieve some stress and give you hope. Take the first step in tackling your debt and create a plan to live debt free.

Other Tips to Consider:

Consider Refinancing Your Debt

Using the Debt Snowball method is a quick and effective method when paying off debt, however, sometimes it makes sense to refinance your debt when you have multiple high-interest credit cards.

If you are paying 12-20% in interest on multiple cards, then refinancing your debt to a lower rate makes sense. For instance, Avant will let people refinance up to $40,000, and rates start at 5.99% APR.

Increase Your Income

This is an important step that a lot of people overlook. You need to find as many ways as possible to make extra money on the side so that you can pay off your debt quickly.

There are many other ways in which you can increase the money you bring in.

For more ideas see 10 Creative Ways to Earn Extra Cash.

NEXT UP: STEP 5-Invest for the future