Let’s Talk Numbers: My Debt Payoff Plan

Since I turned 18, I have always had some sort of debt. Whether it was a student loan, or a credit card debt, or a car loan, there was always something holding me back financially. It took me years to repay my student loan, and my car loan along with some credit card debt, and everything would have been perfectly fine, had I not been accumulating “new” debt while paying off my “old” debt.

To make things easier, let’s just say that my “old” debt has now been paid off, but my “new” debt has reached a whopping number of £13,830! To be perfectly honest, I am not sure if this number scares me or not. I guess it’s not so much the number itself, as the very fact that I am and have been in debt for a while now. It does not feel good. It sets limits on things I could do in my life. So there it is – I am planning to pay off all my debt in 2,5 years! All of it. And here’s how.


I have divided my debt into two big chunks. The first part of it is £4,340 which is my credit card debt at 0% APR until July 2014 (*more on this next time). The second part is my personal loan for £9,490 at 15,9% APR (ouch!) which I took out in December last year to pay off within five years. After careful consideration, I have decided to settle my £4,340 “bill” first, and I am going to do this in 12 months making my very first payment on the 1st of August.

credit card debt (aka debt#1) repayment plan
credit card debt (aka debt#1) repayment plan

Why not start straight away? There is a reason behind it, and I will share it here very soon. Naturally, I will also be making monthly repayments to pay off my personal loan too; however, a huge chunk of it will be taken in interest by the bank.

Once my debt#1 has been settled, my next step would be to renegotiate an interest rate on my personal loan and change my repayment plan. I will attempt to pay off the remaining amount of my debt#2 (which should be around £7,000-7,500 in July 2014) in another 16 months which means I should be debt free by December 2015, just in time for Christmas!

Why divide my debt into two: debt#1 and debt#2? Well, instead of setting one big goal (to clear all my debt in 2,5 years), I set two smaller goals (pay off debt#1 and then move on to pay off debt#2). This way the likelihood of staying focused, motivated and somewhat inspired throughout the whole process is much bigger. The last thing I want is to set one big goal and give up half way through!

Oh, and no more “new” debt, but I guess this is pretty clear. So there it is, as honest about my financial situation as I have ever been! Phew!

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  1. Yes, great plan to divide into two chunks and go after the smallest one first. It helps you psychologically to keep on your program. You can always Google “Dave Ramsey Debt Snowball” to learn more about the method. When you aren’t paying on Debt 1 anymore you will have more to put towards Debt 2 and it goes faster.

  2. I totally agree, the goals seem more achievable this way! Currently I don’t pay any interest on my credit card debt (introductory offer on balance transfers), but all good things (or not so good when we deal with debt) come to an end, so in order to avoid monthly interest charges I have to clear it off by July next year and I’m determined to do it. I will definitely look more into the Snowball method, thank you!

  3. I hate to play devil’s advocate, but have you done the maths between the snowball and avalanche method.

    It seems that you will either:

    * pay down the first loan over 1 year and the second over 2 years via snowball
    * pay down the first loan over 2 years and the second over 1 year via avalanche

    For me, there is not a huge difference in the psychological aspect of the two.

    For further consideration, can I suggest looking through the numbers in my example:


    Your figures will be much less, but given the 0% interest on the lower loan, I’m sure they’ll still be a saving using avalanche. Make THIS saving your psychological incentive!

    1. Honestly? When I first started, I wasn’t thinking too much about math. I just wanted a plan to pay down my debt. As simple as that. I accept that it may not have been the best plan considering my circumstances but it was a start and this is what was important at that stage.

      The more financial books, blogs and articles I read, the better financial decisions I make. As for the above spreadsheet, this is no longer exactly what I am doing. I will have still repaid debt#1 by July 2014 to avoid interest charges, but I’m also about to change my debt#2 repayment plan to minimise my interest charges as much as possible.

      Thank you for the link, I will of course check it out 🙂

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