Staring at a pile of bills and feeling overwhelmed? You’re not alone. According to Experian, the average American carries around $104,215 of debt across mortgages, auto loans, student loans, credit cards, and other debt instruments. The key to tackling debt isn’t avoiding it or hoping it disappears. It’s creating a solid plan that turns what feels impossible into manageable monthly steps.

A debt repayment plan is your roadmap to financial freedom. It helps you understand exactly what you owe, prioritize which debts to tackle first, and stay motivated as you work toward becoming debt-free. Here’s how to create one that actually works.

Step 1: Get the Full Picture

Before you can make a plan, you need to know exactly what you’re dealing with. This might feel scary, but once you understand where you stand financially, coming up with a plan is really just simple math.

List every debt you have, including both revolving debt (credit card balances) and installment loans (student loans, mortgages, car loans). For each debt, write down:

• The total balance owed

• Minimum monthly payment

• Interest rate (APR)

• Payment due date

Don’t forget smaller debts like store credit cards or money borrowed from family. Everything counts. You can pull your credit report for a comprehensive view of what’s on your credit history.

Step 2: Create Your Budget

You can’t build an effective repayment plan without understanding your monthly cash flow. Start by calculating your baseline budget (the minimum amount you need to pay your basic bills).

List your essential expenses including housing, utilities, food, transportation, and the minimum monthly payments on all your debts. Then subtract your total expenses from your monthly income. What’s left is what you have available for extra debt payments or other goals.

If there’s nothing left over, look for areas to cut back. Review your spending from the past few months to identify where your money actually goes. Even small changes like cooking at home more often or canceling unused subscriptions can free up money for debt payments.

Step 3: Choose Your Repayment Strategy

There are two main approaches to paying off multiple debts, and both work. The key is picking the one that matches your personality and motivation style.

The Debt Snowball Method

With this approach, you pay off your debts in order from smallest to largest balance, regardless of interest rate. You put all extra money toward the smallest debt while making minimum payments on everything else. Once the smallest debt is gone, you roll that payment into the next smallest debt.

The snowball method works because it gives you quick wins. Paying off that $500 credit card in a few months feels great and builds momentum to tackle bigger debts. Research suggests this psychological boost helps many people stick with their plan better than other methods.

The Debt Avalanche Method

This strategy focuses on paying off debts with the highest interest rates first. You make minimum payments on all debts but put extra money toward the one with the highest APR. Once that’s paid off, you move to the debt with the next highest rate.

The avalanche method typically saves more money in interest over time because you’re eliminating your most expensive debts first. However, if your highest-interest debt has a large balance, it might take longer to see progress, which can be discouraging.

Step 4: Consider Debt Consolidation

If you’re juggling multiple high-interest debts, consolidation might simplify your life and save money. This involves combining several debts into one new loan, ideally at a lower interest rate than what you’re currently paying.

Options include a debt consolidation loan, balance transfer credit card with a 0% introductory APR, or using a home equity line of credit. Before choosing this route, make sure the new payment fits comfortably in your budget and that you’re not just moving debt around without addressing spending habits.

Step 5: Automate and Track Progress

Set up automatic payments for at least the minimum amounts on all your debts to avoid late fees. If possible, automate your extra payments too. Many people find it easier to stick with their plan when the payments happen automatically.

Track your progress regularly. Seeing balances shrink and debts disappear keeps you motivated. Consider using apps like YNAB or EveryDollar to monitor your debt payoff journey, or simply update a spreadsheet monthly.

Step 6: Find Ways to Accelerate Payments

Look for opportunities to put extra money toward debt without making your life miserable. This might include:

• Applying tax refunds, bonuses, or gifts directly to debt

• Selling items you no longer need

• Taking on freelance work or a side hustle

• Using the “pay yourself first” method by treating debt payments like a non-negotiable bill

Even an extra $25 per month can significantly reduce the time it takes to pay off debt and the total interest you’ll pay.

When to Seek Help

If your total unsecured debt equals 50% or more of your gross income, or if paying it off within five years seems impossible even with a strict plan, consider talking to a nonprofit credit counseling agency. These organizations can help you create a debt management plan and sometimes negotiate lower interest rates with creditors.

Be wary of debt settlement companies that promise to eliminate your debt for pennies on the dollar. These often damage your credit and charge hefty fees.

Staying Motivated

Paying off debt takes time and discipline. Build celebration milestones into your plan. When you pay off a credit card or reach a certain percentage of your goal, treat yourself to something small and affordable. Share your progress with supportive friends or family members who can cheer you on.

Remember that setbacks happen. If you have an emergency and need to use credit or can’t make extra payments one month, don’t abandon your plan. Just get back on track as soon as possible.

Creating a debt repayment plan isn’t just about the math. It’s about taking control of your financial future and building habits that will serve you long after the last payment is made.