How to repay debts

Sometimes it can feel difficult to see a path out of debt, particularly if you have multiple debts. If this is the case for you there are some different ways you can tackle it.

If you haven’t already, draw up a budget that looks at your spending and assesses how much you have available to repay each month.

If the amount you have available to make repayments isn’t enough to meet your repayment terms, you may be able to make arrangements with your providers to make things more manageable. Remember, if your debts do feel too much, you can always get in contact with either your bank or government services for help.

Explore more: Where to go for financial assistance

Method 1 - Prioritise debts

Your debts will likely be for different amounts and be charging different rates of interest. That means you can have two ways of prioritising.

Paying off the most expensive debt first

Typically, a cost effective option is to repay the debt with the highest interest rate first as it’s charging you the most to borrow the money. List out your debts in order of interest rate, going from highest to lowest. Prioritise paying the debt at the top, working your way down the list over time while still meeting the minimum repayments on all.

Paying off the smallest debt first

While it may not be the most cost effective method, some people prefer to pay off their smallest debts first so they can reduce the number of debts they have to think about.

If you feel this may suit you, list out all your debts with the smallest debt at the top and the largest debt at the bottom. Prioritise paying the debt at the top, working your way down the list over time while still meeting the minimum repayments on all.

What else do you need to consider?

Whatever method you choose, try to repay as much as you can each month. Keep in mind that each debt may have certain conditions you need to meet. Check you won’t be charged for early repayments or overpayments.

Method 2 - Debt consolidation

If you’re finding juggling multiple debts too stressful, a debt consolidation loan can be a way to simplify your repayments and get back on track. A debt consolidation loan merges debts, giving you:

  • a single interest rate
  • recurring repayments 
  • a clear loan term

Explore more: What is debt consolidation?

This can make managing your debts feel a lot less stressful. However, it’s important to understand if it will mean you will have to repay more over the course of the loan.

The amount you borrow, loan term and interest rate will determine how much interest you have to pay over time – use a calculator to estimate how much this could be.

What next?

The best step forward will depend on your financial situation and your own financial behaviour. Evaluate all the options and the potential pros and cons for you.

Explore more: How to make the right financial decisions