How To Set Up a Debt Repayment Plan in 6 Easy Steps

Close-up of scissors cutting a credit card
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Once you've decided it's time to get out of debt, one of the first steps you need to take is setting up a debt payment plan. 

Not only will a repayment plan keep you on task, but it will also help you stay motivated since you'll be able to see real progress. Another plus of a debt repayment plan? By applying your extra money to one debt at a time, you will significantly speed up the debt repayment process. If you set up and stick to a debt repayment plan, you may be surprised at how quickly each debt will disappear. 

Follow these six easy steps to set up a debt repayment plan.

1. Make a List of All Your Debts

Before you can come up with a strategy, you need to be able to see all your debts in one place. Your list should include the minimum payment amount, the interest rate, and how much you owe total. This list should also include all of your debt, from credit cards and personal loans to student loans, even your mortgage. If you owe money to family and friends, you should also include it on your list. 


A small emergency fund of about one month's salary can help prevent you from using your credit cards again while you are working on paying off your debt. Build this up first before you start applying extra money toward your debt.

2. Rank Your Debts

Next, you should rank your debts in the order you want to pay them off. Some experts recommend going from the smallest amount to the largest since this helps get the momentum going. Others recommend listing the debts from the highest to the lowest interest rate since this will save you the most money. Consumer debt, such as credit cards, will have a significantly higher interest rate, so it's always best to start there. Debt reduction software can help you rank your debt and come up with a strategy for paying it off.

Beyond that, the order you choose is up to you; the important thing is to stick to the list once you make it.

3. Find Extra Money To Pay Your Debts

Now, you need to decide how much extra money you have available each month to pay toward your debt. You may need to cut back spending in other areas so that you have money for your debt payment plan. Sticking to a strict monthly budget will help you find extra money to apply to your debt. 

Another option is to take on a part-time job or pick up overtime hours at your current job to boost your earning power, or find extra work in the gig economy. You can also sell items to earn extra money for your debt payment plan. Additionally, you may want to apply all the money you receive from gifts, bonuses, or tax returns to your debt in order to pay it off more quickly.

4. Focus on One Debt at a Time

In order to succeed with your debt repayment plan, you should focus on paying off the first debt on your list. Put all extra money toward this first debt, while paying the minimum on all other payments. 


When you focus on one debt at a time, you are able to pay off the debt more quickly, because more of the money will go directly to the principal balance and less is spent on paying interest. When you spread your extra money over several debts, you are lessening the impact it has on your debt because you are paying more interest.

5. Move On to the Next Debt on Your List

Once you have paid off the first debt on your list, it's time to move onto the next one, while continuing to pay the remaining debts' minimum balances. Continue to do this until you have crossed all your debts off your list. When you first start working on your plan, it may seem like it will take forever to pay off your first debt, but as you work down your list and gain momentum, you'll be surprised at how quickly you can pay off the next one. 

6. Build Up Your Savings

Once you've paid off all your debt, then you should focus on building up a savings account. This will help prevent you from going back into debt in the future. An emergency fund is one of the best tools that you can use to take control of your finances and avoid going into debt.

And when it comes to using credit cards in the future, use them responsibly or not at all. Your future self will thank you. 

Other Tips

Review your bank's or credit card's policies about extra payments and principal payments on a loan. This will help you get the most out of your extra payments each month. Some banks will charge you an extra payment fee. If you understand how they charge, you will be able to work out a strategy that will help you apply the majority of the money to your principal each month.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Fidelity. "How to Pay Off Debt—and Save Too."

  2. Consumer Financial Protection Bureau. "What Is a Prepayment Penalty?"

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