How to repay debts

Managing debts can be stressful. Even figuring out how much you owe and how long it’s going to take you to repay can feel daunting. But it’s important you do. Having a clear picture of what you owe is the first step in getting a handle on your debts.

Sometimes it may be easy, you might just need to check your credit card balance. Other times it could be more difficult, as you’ll need to add up debts across different store and credit cards, as well as loans and overdrafts and buy now, pay later services.

If you have multiple debts, there are some techniques you can use to make repaying them easier.

Pay off the most expensive debt first?

This may be the most cost effective option as it should help you minimise the amount of interest you’ll have to repay. Here’s how to do it:

• Make a list of your debts
• Order the list, starting with the debt with the highest interest rate
• Make the minimum repayment on all
• Use any extra money available to repay the debt charging the highest interest rate
  

Over time work your way down the list. But make sure to check whether there’ll be any charges for making extra (or early) repayments. If there are, is the interest you’d save by making the extra repayment greater than the interest charged?

Pay off the smallest debt first?

For some people, it’s the number of debts they find most difficult to handle. So instead of focusing on the most expensive debt, you may want to work through the smallest debts first. Here’s how to do it:

• Make a list of your debts
• Order the list, starting with the smallest debt at the top
• Make the minimum repayment on all
• Use any extra money available to repay the smallest debt
  

Over time work your way down the list. But make sure you check whether there’ll be any charges for making extra (or early) repayments. Again, if there are, is the interest you’d save by making the extra (or early) repayment greater than the charge?

Use a debt consolidation loan?

If you’re finding it too much to handle several debts, a debt consolidation loan could help remove stress and create a clear repayment plan. A debt consolidation loan brings your debts together to give you a single interest rate, set repayments and a clear loan term.

This can remove some of the stress, but could also cost you money. So before taking out a debt consolidation loan it’s important to work out whether you’ll be repaying more on a monthly basis or over the term of the loan.

What to do if your debts feel overwhelming

If you’re finding your debts overwhelming and can’t see a clear path forward, there’s support available. You may be able to negotiate with your bank and utility providers to work out repayment plans.

If you’re using Humanforce Thrive, you can also talk to our team to get support. You might also like to set up time with a financial counsellor who can provide you with free, objective guidance on how to manage debt.

What next?

Not sure whether you’re using your credit card the right way? See answers to some of the big questions about credit cards.