When you owe money on several cards, an overdraft or a loan, it's hard to know where to start. A payoff plan answers three questions: what you owe, how much you can pay each month, and which debt gets the extra. Once those are settled, you can stop worrying about the whole pile and work through it one debt at a time.
This guide takes you through it in five steps. It takes about half an hour, and you only need your latest statements.
Step 1: List every debt
Write down each debt with four details. You'll find them on your statement or in your banking app:
Balance: what you owe today
Interest rate: the APR for cards and loans, or the EAR for an overdraft
Minimum payment: the least you must pay each month
Due date: when the payment goes out
Include everything: cards, store cards, overdrafts, loans, buy now pay later and car finance. Don't count your student loan. It's repaid through your salary and works differently.
Step 2: Work out what you can pay each month
Take your monthly take-home pay and subtract your essentials: rent or mortgage, council tax, energy, food, travel and other bills. What's left is the most you could put towards debt.
Don't commit all of it. Keep a small buffer for things that come up, so a broken boiler doesn't send you back to the credit card. A plan you can keep up for a year is better than one that's too tight to last a month.
If there's nothing left after essentials, or you're already short, skip to when to get help.
Step 3: Pay every minimum, every month
Set up a direct debit for at least the minimum on each debt. Missed payments mean late fees, extra interest and marks on your credit file, and can cancel 0% deals.
On credit cards, a fixed payment is better than the "minimum payment" option. The minimum falls as the balance falls, which can stretch a card out for over a decade. See how credit card minimum payments work.
Step 4: Choose which debt gets the extra
Whatever is left after the minimums goes to one debt at a time. There are two popular ways to choose:
Avalanche: the highest interest rate first. This usually costs the least overall.
Snowball: the smallest balance first. You clear a debt sooner, which helps some people keep going.
When a debt is cleared, add its payment to the next one on the list, so your total monthly payment stays the same while each debt goes faster. Our snowball vs avalanche worked example shows the difference with real numbers.
Overdrafts are often the most expensive debt at around 40%. If you have one, see how to pay off an overdraft.
Step 5: See your debt-free date and keep it up to date
Add your debts to the payoff calculator to compare both methods and see the month you'll be clear. Seeing a date makes the plan feel real.
Check in once a month. Update your balances, put any windfalls (a bonus, a tax refund, something you've sold) on your priority debt, and adjust the plan if your income or bills change. A bad month doesn't mean the plan has failed. Pay the minimums, then pick it back up the next month.
Mistakes to avoid
Spending on the card you're paying off. Take it out of your digital wallet and use a debit card day to day.
Having no buffer. One unexpected bill shouldn't undo three months of progress.
Overpaying cheap debt first. Clear the expensive debts before you overpay a low-rate loan or your mortgage.
When to get help
If you can't cover your minimums, you're borrowing to pay bills or other debts, or you've missed payments, talk to your lenders. They must treat customers in financial difficulty fairly and can freeze interest or agree a lower payment.
Free, confidential advice is also available from StepChange, National Debtline and Citizens Advice. You'll find them on our financial resources page.
This guide is general information, not financial advice.