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Strategies for Debt Repayment

Stuck in a mountain of debt?

Debt is stressful, it’s expensive and it limits the amount of money you can put toward your life goals

Get organized

Ready to design a debt repayment plan? Start by gathering the following information:

List all of your debts:

	•	Credit cards
	•	Student loans
	•	Auto loans
	•	Medical bills
	•	Mortgage
	•	Personal loans

For each debt, write down:

	•	The balance
	•	The interest rate
	•	The minimum payment

For example:

	•	Debt: Gold Rewards Credit Card Debt
	•	Balance: $1,400
	•	Interest rate: 19.05%
	•	Minimum payment: $30/month

Choose a strategy

The strategy you choose will affect the order in which you pay off your debts: 

The Snowball method

	•	How it works: Debts are arranged and paid off from smallest balance to largest balance
	•	Who it’s for: This strategy is ideal for beginners or for those who rely on visible progress in order to feel motivated 
	•	Why it’s great: Small debts are quickly crossed off your list, which can give you a confidence boost that helps you stick to your repayment plan

The Avalanche method

	•	How it works: Debts are arranged and paid off from highest interest rate to lowest interest rate
	•	Who it’s for: Ideal for those who truly believe that slow and steady wins the race—this strategy requires discipline and determination
	•	Why it’s great: This strategy eliminates your most expensive debt first, making it the most mathematically powerful debt repayment option

Consolidation

	•	How it works: A new loan is taken out and the borrowed money is used to pay off all your other debts
	•	Who it’s for: Those who are having trouble keeping track of all their various debts and repeatedly missing payment due dates as a result
	•	Why it’s great: You only have one loan—and one interest rate—to keep track of; factor in any additional fees before choosing this option

Make a plan

After choosing a strategy, solidify the steps of your monthly repayment plan: 

	•	Add ’em up: Add up all your minimum payments—you must have this total in your monthly budget in order to avoid additional fees
	•	Set a payment: Define an additional amount of money to put toward loan repayment every month—be generous and realistic
	•	Start at the top: The debt at the top of your list (which will vary, based on your chosen strategy) will receive its minimum balance plus the additional funds you determined in Step 2
	•	Make the minimums: The rest of the debts on your list will receive their minimum payments
	•	Increase your payment: When you pay off a debt, add its minimum payment to the repayment money determined in Step 2

Look for little extras

Challenge yourself to reduce your spending in one budget category each month. Put the savings toward your debt repayment fund. Switch the category every month to save some extra bucks without feeling deprived.

Sources: Credit Counselling Society, Forbes, Investopedia.com, TheBalance.com, TheSimpleDollar.com