What Is a Debt Repayment Plan?

Debt Repayment Plans Explained

Worried couple seated on a couch looking over their paper bills; laptop on man’s lap

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A debt repayment plan is a strategic series of steps you take to pay off your outstanding debts.

If you’ve ever gone to college or bought a car or home, it’s likely you’ve taken on some type of debt. While debt isn’t always a bad thing, too much debt can leave you struggling to pay your bills every month. And if you take on high-interest credit card debt, you could end up paying thousands of dollars in interest.

That’s why it’s a good idea to come up with a debt repayment plan. A debt repayment plan will help you repay your debt over time and gain more control over your financial future. 

Definition and Example of a Debt Repayment Plan

A debt repayment plan is a strategic series of steps you take to pay off your outstanding debts. It’s a plan you put in place to eliminate your debt and get your finances back on track. 

A good debt repayment plan will help you manage your payments and ensure you stay motivated. It’ll also help you cut down on interest charges and avoid falling behind. For example, you may come up with a goal to pay off your debt in three years, and from there, you decide to figure out how you can get there by paying off $400 each month. Your plan might include specific strategies for lowering your interest costs or increasing your income so you can meet your goal.

How a Debt Repayment Plan Works 

A debt repayment plan is a structure you put into place to help you pay off your outstanding debts. You’ll take specific steps to lower your monthly bills and pay down your debt. 

The plan that’s right for you will depend on your financial situation and preferences. Regardless of what steps you choose to take, a good debt repayment plan should include the following elements.

Account For All Outstanding Debt

The first step you’ll take is to account for all your outstanding debt. Create a spreadsheet and list your debts in order of size or interest rate. Knowing how much you owe, what your monthly payments are, and how much you’re paying in interest will help you come up with a debt repayment strategy.

Lower Your Other Monthly Expenses

Next, you’ll want to look for ways to lower your other monthly expenses so you can free up money (if possible) to put toward your debt. You can use a budgeting app to see how much you’re spending each month, and look for expenses you can cut. 

Lower Your Debt Costs

You may also want to consider ways to lower your interest rate, so that the total cost of your debt falls. For example, you could try negotiating with your lender for a lower rate, or getting a balance transfer credit card or personal loan to consolidate your high-interest credit card debt at a lower rate. That, in turn, would lower your monthly payments. 

Choose a Repayment Strategy

Finally, you’ll choose a repayment strategy that works for you. Here are two you can consider for paying down loans and credit card debt:

  • Debt Snowball: With the debt snowball method, you’ll start by paying off your smallest debt first and making minimum payments on everything else. Once you pay off your smallest debt, you’ll apply that money toward the next smallest debt, essentially creating a “snowball” of payments as you pay off each balance. Research has shown that borrowers are more likely to pay off all their debt if they focus on paying down the smallest balances first. 
  • Debt Avalanche: With the debt avalanche method, you’ll list out your debts based on the interest rates. Then you’ll focus on paying off the debt with the highest interest rate first while making minimum payments on everything else. This plan doesn’t focus on the size of your debt—instead, the goal is to save the most money in interest payments. 


The advantage of the debt snowball method is that since you start seeing progress right away, it can be very motivating to continue. But it means you may end up paying more money in interest as you won’t be focused on the costlier debts right away.

Debt Repayment vs. Debt Management

When you’re facing debt, you may also consider a debt management plan. A debt management plan (DMP) is a kind of debt repayment plan—but it’s done with outside help. 

Debt Repayment Debt Management
A plan to repay your debts over time A type of debt repayment plan created and overseen by a third-party company 
You may come up with and implement the plan on your own and continue to pay your creditors directly. A credit counseling company consolidates your debts and negotiates with your creditors to lower your interest rates and fees; you make one monthly payment to that agency, which pays your creditors.
You may choose to keep your credit cards open. You are required to close credit cards included in the DMP so you can’t use them to incur more debt.
No extra cost May require modest fees

While a DMP is more restrictive than a repayment plan you create on your own, you may find it helpful to have the extra structure and support. A credit counselor reviews your financial situation and works with you to create a tailored plan. They may also negotiate with your creditors to lower your interest rates. Counseling usually includes information about budgeting, making payments, and staying out of debt in the future. If you go this route, look for a credit counseling agency that’s part of the National Foundation for Credit Counseling or the Financial Counseling Association of America.

You may need to pay for a DMP, however. There may be an initial setup fee of up to $30-$50 and a monthly fee (usually $20-$75). If you go the DIY route, you of course won’t have those expenses.


Don’t confuse nonprofit credit counseling companies with debt settlement companies. For-profit settlement companies often require you to stop making payments to your creditors altogether for many months in hopes of pressuring them to settle your debt for less than what you owe. But there’s no guarantee of success, and the process can ruin your credit score. 

Key Takeaways

  • A debt repayment plan is a structure you put in place to pay off your outstanding debt.
  • The key to a successful debt repayment plan is assessing how much you owe, ways you can increase your monthly payments, and finding a strategy that works best for your budget.
  • The debt snowball method and debt avalanche are two popular debt repayment strategies.
  • A debt management plan involves working with a credit counselor to plan how to repay your outstanding debt.
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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. Consumer Financial Protection Bureau. “What Do I Need To Know If I’m Thinking About Consolidating My Credit Card Debt?” Accessed Feb. x, 2022.

  2. Kellogg School of Management, Northwestern University. “The ‘Snowball Approach’ to Debt.” Accessed Feb. 7, 2022. 

  3. Consumer Financial Protection Bureau. “How To Reduce Your Debt.” Accessed Feb. 7, 2022.

  4. Experian. “A Debt Management Plan: Is It Right for You?” Accessed Feb. 7, 2022. 

  5.  Federal Trade Commission. “Coping With Debt.” Accessed Feb. 7, 2022.

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