If you have decided to set up a debt payment plan then you have already taken the first steps to reducing your debts and becoming debt free. Likewise, if you are considering ways to reduce your debt, then a debt payment plan could be just the answer you’re looking for.

Although reducing personal debt is usually a slow and steady process, many people find themselves able to reduce their debts quicker than they believed they would once they begin to follow their payment plan.

While you might decide to work with a debt counsellor or a debt management company to pay off your debts, setting up a debt payment plan yourself is easy to do.

Understand Your Debt Levels

Before solving any problem, you first need to understand the scale of it. Begin by listing all of your debts. Do this either on grid-lined paper or by using a spreadsheet like Microsoft Excel, so you can use additional columns to add details for each debt.

Your final table might look like the one below.

Creditor Minimum Payment Repayment Frequency Interest Rate Total Debt
Creditor 1 $59.00 Monthly 30.57% $1,200
Creditor 2 $125.00 Monthly 23.45% $2,800
Creditor 3 $14.00 Weekly 40.25% $900
Creditor 4 $27.00 Weekly 35.50% $1,300
Creditor 5 $98.00 Monthly 32.20% $2,560


Prioritise Your Debts

The next step is to prioritise the debts you want to repay quickest. How you do this is up to you. Most people will prioritise by either listing their debts in terms of the amount owed from largest to smallest or by listing debts by their interest rate in the same way. Take some time to work out how much interest you are paying on each balance and whether your minimum payments are simply repaying the interest and not the actual debt. Depending on the level of debt you hold and the different types of credit you have been using, you may save money by paying off any smaller debts with a higher interest rate first.

Decide on Your Strategy

Consider how you are going to approach repaying your debts. You may need to speak to each creditor individually in order to get an idea of your options. Don’t put off speaking to creditors. It may seem a daunting thing to do but you may be surprised by how supportive and flexible your creditors are willing to be. Some of the things you may want to consider include:

  • Asking creditors for a ‘payment holiday,’ which will free up cash for you to clear your prioritised debts quicker.
  • Asking creditors if they are able to freeze your interest payments, helping you to service your debts quicker.
  • Working out how much you can afford to pay each creditor based on the prioritisation of your debts, and approaching each with a payment plan based on this.

Depending on the options available with your creditors, you might decide on one or a combination of these options.

Check Your Disposable Income

How much money do you have in order to pay your debts? Do you need to review your regular expenditure and cut back on your spending in some areas? Even if your current levels of disposable income are enough to help you pay your debts, it is still worth checking whether you could make savings within your lifestyle to reduce your debts faster.

Once you know how much money you will have each month, you can then apply this figure to the strategy.. If you end up with additional disposable income in a particular month, consider saving this or making additional loan payments to your top priority debt.

As Your Debts Clear, Reprioritise

As you gradually eliminate your different debts,  look again at how much interest you are paying and your remaining balances and consider using any excess to pay the debts that will cost you the most in the long-term.

While servicing your debt repayment plan, whether through a debt management company or by doing it yourself, avoid any additional debt. Many people start to open new credit accounts as they become closer to being debt free, but quickly find themselves in a similar situation within a short space of time.

Alternatives to Debt Repayment Plans

If a debt repayment plan does not appeal to you, or you find that creditors are being difficult and unsympathetic to your situation, you may decide to look at alternatives. One of these is debt consolidation, although if you have already begun to miss payments you may find your credit rating is such that you cannot get a debt consolidation loan. If in doubt, seek out financial counselling or advice about what may be best for you.


Disclaimer:  This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs.  Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.

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