Debt repayment methods: how to pay off debt

Quick answer: Looking to clear your debt? There are a few useful methods that can make things easier. The debt avalanche method clears high-interest debts first to save money, while the debt snowball method tackles small debts for quick wins. Debt consolidation, which combines your debts into one payment, can be worth considering too.

If you’re looking for a plan to pay off your debt, some tried-and-trusted methods can make things a lot simpler — like the snowball and avalanche methods, or debt consolidation. The right approach depends on your situation. Some methods can help you pay less interest. Others can help you stay motivated. This guide covers several options so you can choose what works for you.

Which debt should I pay off first?

Always deal with priority debts first. These are bills that cause serious problems if you don’t pay them, for example:

• Gas or electricity bills — you may have your energy supply cut off if you don’t pay these
• Council tax — you may have to go to court or even prison if you refuse to pay
• Mortgage payments — you may lose your home if you don’t pay your mortgage each month
• Rent payments — your landlord may evict you if you keep missing payments

Citizens Advice explains priority debts in more detail . You can also contact them for support if you’re struggling to pay your priority debts.

After priority debts, you may want to pay off debt with the highest interest rate first. This is sometimes referred to as the debt avalanche method of paying off debt. It’s most likely to save you more money overall.

You can also see a clear view of what you owe with your free Experian Credit Report. Your report shows information reported to us by lenders, like your current borrowing and interest rates. Checking your report won’t affect your credit score.

What is the debt avalanche method?

When you use the avalanche method to pay off debt, you focus on clearing debt with the highest annual percentage rate (APR) first. This usually means you save on the cost of borrowing overall.

Here’s how it works:

1. List your debts from highest interest rate to lowest. Check your free report to see them all in one place.
2. Pay the minimum amount on each debt every month to avoid late fees and protect your credit score.
3. Put as much extra money as possible toward the debt with the highest rate.
4. Once you clear the highest-rate debt, move your extra payments to the debt with the second-highest rate. Continue in this way until all your debts are paid.

You’ll pay less interest as your debt gets smaller. This can free up extra money for payments and help you clear what you owe faster.

Here are some things to consider before choosing the debt avalanche method:

• It might take time to clear your first debt. If your highest-rate debt is also one of the largest, progress can feel slow to begin with.
• Loans typically have early repayment fees. Unlike credit cards and overdrafts, loans and mortgages have fixed payments. Lenders charge a fee if you overpay, which could cost more than what you’d save on interest.
• Some interest rates can change. Rate rises or the end of promotional offers could affect which debt is most expensive.
• You may have other priorities. For example, some people might prefer to repay a guarantor loan sooner to reduce risk for their guarantor.

What is the debt snowball method?

When you use the snowball method to pay off debt, you focus on clearing your smallest debt first. Starting with quicker wins can help you feel motivated to tackle larger debts later on and stick to your plan.

Here’s how it works:

1. List your debts from smallest to largest. Check your free report to see them all in one place.
2. Pay the minimum amount on each debt every month to avoid late fees and protect your credit score.
3. Put as much extra money as you can towards your smallest debt.
4. Once you clear the first debt, move the extra payments to your second-smallest debt. Continue in this way until all your debts are paid.

Here are some things to consider before choosing the debt snowball method:

• You’ll likely end up paying more overall than with the avalanche method. You may be paying more expensive interest rates for longer with the snowball method.
• It may take longer to clear all your debt. Higher-rate debts can grow faster, so there may be more to pay off if you’ve left them to focus on smaller debts.
• You may be charged for overpaying. Loans and mortgages don’t have flexible payments. Lenders often charge an early repayment fee that could cost more than the interest you’d save by overpaying.
• Other debts may be more important. For example, if a 0% promotional rate is ending soon, paying that debt first could help you avoid moving to a much higher standard variable rate.

Can I use debt consolidation to pay off debt?

Yes, you can. Debt consolidation is where you take out a single loan that pays off all your existing borrowing. This means you make just one payment each month, with one interest rate. It can make your finances a lot easier to manage, and you might save money if the new loan has a lower rate than what you’re paying now.

Your rate isn’t the only thing that affects how much you pay, though. If you have a longer loan term, you may end up paying more interest over time — even if your monthly payments are lower.

Debt consolidation comes with risk if you’re not disciplined. For example, some people clear their credit card debts with a new loan, but then start using those cards again before they’ve paid off the loan. They now have more debt than they started with. You need to be committed to debt consolidation for it to work.

How to consolidate debt into one payment

If debt consolidation is right for you, decide which debts you want to group together. Then find a debt consolidation loan that’s large enough to pay them off.

It’s always worth shopping around for the best rates before applying for a loan. You can compare loans from over 40 trusted lenders with Experian. Searching with us is free, fast and won’t affect your credit score. We can even show your chances of being accepted for certain offers before you apply. Just remember, we’re a credit broker, not a lender.

Some lenders also work with Experian to use ReFi™ technology, which means that if you take out a ReFi™ debt consolidation loan, the money is used to pay off your existing debts directly for you. This can help make things a bit simpler, because it means that lenders then may not count those debts as ongoing repayments during affordability checks.

Like any loan, debt consolidation loans come with affordability checks. Whether your application is accepted will depend on the lender and your personal situation. The debts you’re planning to pay off with the debt consolidation loan may be seen as ongoing repayments during checks. This could affect how lenders view your application and may lower the amount you can borrow.

With ReFi™, the loan is clearly being used to clear existing debts. Some lenders may take this into account when looking at your application. While it doesn’t guarantee approval or better loan terms, ReFi™ is designed to give lenders more confidence in how the loan will be used. Depending on the repayment term and interest rate, you could pay more overall. Missing payments may negatively affect your credit score.

Is it better to pay off debt with a loan or balance transfer?

It’s possible to group credit card debt with either a balance transfer card or loan. The right option for you will depend on your situation.

A balance transfer card could be a good option if your debts aren’t large and would be covered by the card’s credit limit. You also want to be sure that you can clear the debt before the card’s low or 0% rate ends. When the 0% rate does end, the interest on any remaining debt will soar.

A debt consolidation loan could be a good option if you need to borrow a larger amount and repay it over several years. A loan also gives you fixed monthly payments and a clear end date, which can make budgeting easier. But unlike a 0% balance transfer card, you will pay interest each month.

Credit Score Specialist

Our credit score expert says

Debt consolidation can make repayments more manageable, but it doesn’t reduce what you owe. You’ll make a monthly payment that will clear your debt over a fixed period. Work out what’s affordable, whether it saves you money and if it will help you become debt-free. Make sure it genuinely helps your situation before applying. John Webb, Experian UK

How to pay off debt fast

The fastest way to pay off debt depends on your personal circumstances. You need to use a method you know you’ll stick to.

The avalanche method is a proven way to reduce interest, and it frees up more money for payments. But some people find that the snowball method helps them stay motivated so they reach their goal sooner.

Other people find it helpful to pay off credit card debt with a balance transfer or consolidate debt with a loan. Just know that if you pay off a loan sooner than agreed, there’s usually an early repayment fee.

What to do if you can’t pay debt

There are other ways to get out of debt if you’re on a low income or owe a lot of money. Some people use a debt management plan to make smaller payments than originally agreed. Others use an insolvency solution like bankruptcy to write off some or all of their debt.

These solutions can have a serious impact on your credit report, finances and lifestyle, so make sure to get free, independent debt advice first.

Need support with your debts?

Help is on hand if you need advice or support:

• GOV.UK explains common options for dealing with debt
• Citizens Advice has guides on budgeting, benefits and creating a debt plan
• National Debtline and StepChange offer free, confidential debt advice

Frequently asked questions

How do I check what debts I have?

Checking your credit report will show you your debts in one place. Your report shows things like your current borrowings, balances and interest rates. Viewing your report is free and won’t affect your credit score.

Should I pay off debt or save?

It depends. It’s important to save for the future — just know that interest earned on savings is often less than interest paid on debt. MoneyHelper’s advice on saving or paying debt is generally to pay off debt first, as long as you have emergency funds and aren’t losing money to early repayment fees.

Should I pay down debt or pay into an emergency fund?

Always pay your priority debts first. These are debts that can cause serious problems if you don’t pay them — like rent arrears, energy bills, council tax, monthly mortgage and loan payments, and minimum card payments.

After priority debts, it’s often wise to have an emergency fund before paying down things like credit card debt. An emergency fund can help protect you from further debt, for example if you need urgent car repairs or lose your job.

Should I pay down debt or invest?

MoneyHelper’s advice on investing or paying debt is generally to pay debt first and save an emergency fund before thinking about investing. Investing can be a way to make your money grow faster. But it comes with risks and you could end up with less money than you started with.

Which credit card should I pay off first?

List all your card debts in order, with the highest interest rate at the top. The card with the highest rate is likely to be the one costing you the most. If so, concentrate on paying that off first. Make sure you continue paying the minimum on any other credit cards. Otherwise, missed payments will lead to extra fees and damage your credit score.

Remember to check if any of your cards have an introductory or 0% rate that’s ending soon. You’ll move to the lender’s standard variable rate when this happens, which is often expensive.