Set Up a Debt Payment Plan in 6 Steps

Michael Krasowitz/ Photographer's Choice/Getty Images

Once you have decided that you want to get out of debt you need to set up a debt payment plan. It is important to realize that by applying your extra money to one debt at a time, you will significantly speed up the debt repayment process. If you work hard you will be surprised at how quickly you can pay off your debt. Follow these steps:

1. Make a List of Your Debts

You need to make a list of all the debt that you have.

Your list should include the minimum payment amount, the interest rate and how much you owe. This list should include all of your debt from credit cards and personal loans to student loans and your mortgage. If you owe money to family and friends you should also include this on your list. 

2. Rank Your Debts

You will need to rank your debts in the order that you want to pay them off. Some experts recommend going from smallest to largest since this helps to 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. The order you choose is up to you, but the important thing is to stick to the list once you make it.

3. Find Extra Money to Pay on Your Debts

You will need to decide how much extra money you have a month to pay towards your debt. You may need to cut back spending in other areas so that you have the money to put towards your debt payment plan.

You may also decide to take on a part-time job or to pick up overtime hours. 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 find extra money, a good solid budget will make a big difference in freeing up money so that you can pay off the debt.


4. Pay Off the First Debt on Your List

Pay all the extra money on the first debt on your list, 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 and less is spent on the interest. When you spread the extra money over several debts, you are lessening the impact that it has on the debt. 

5. Move onto the Next Debt in Your List

Once you have paid it off move to next debt on your list, paying the extra plus the current minimum payment. Continue to do this until you have crossed all the items off of 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 continue to roll the payments over you will speed up how long it takes off to the next one. At the end, it should be fairly fast.

6. Build Up Your Savings

Put most of the extra money you now have into savings. Soon your money will begin to work for you. Make sure that you cut up and cancel your credit cards as you finish. That way you will never need to do this again. An emergency fund is one of the best tools that you can use to take control of your finances and to avoid debt in the future.



  1. You need to review your bank's policies about extra payments and principal payments on the loan. This will help you get the most out of your extra payments each month. Some banks will charge you an extra payment fee. Some will not apply the extra payment just to principal. 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.
  2. A small emergency fund of about one month's salary can help you prevent from using your credit cards again while you are working on paying off your debt. You may want to do this before you start applying extra money toward your debt.