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How to pay off your debts

How to pay off your debts

If you’ve found yourself in a situation where you are struggling to pay off multiple debts it can feel overwhelming. The best place to start is by putting a plan together for repaying your debts. Start with a budget, once you have that built and know how much you can repay think about strategy. Here’s how to get started:

There are a couple of different approaches, but broadly they can be broken down into two methods.

1. Pay off the debt with the highest interest rate first

The interest rate is effectively how much it costs you to borrow money. If you’ve got multiple debts it’s likely that each has its own interest rate. This approach will help you save money because you will be minimising your interest repayments.

How it works:

  • Order your debts from highest interest rate to the lowest interest rate
  • Make the minimum payment on each debt by the payment due date each month
  • Use any extra cash you have available to pay off more of your debt with the highest interest rate
  • Continue until all the debts are paid off, swapping the debt with the highest interest rate as debts are cleared.

2. Pay off your smallest debt first

Alternatively you can prioritise repaying your smallest debt first so that you can reduce the number of debts you have. While it may not be the most efficient method from a purely financial perspective, reducing the number of debts you have can help you feel less overwhelmed.

How it works:

  • Order your debts from smallest to largest in terms of money owed
  • Make the minimum payment on each debt by the payment due date each month
  • Use any extra cash you have available to pay off more of your smallest debt
  • Continue until all the debts are paid off, swapping the smallest debt as each is cleared.

You can also consider consolidating your debts so they are merged into one larger debt, giving you just one repayment and a clearer picture of your repayment path.

Where to go if you need support

If the steps above aren’t enough to make ends meet, look for assistance where possible. The Department of Human Services can help you find out what services are available for you.

If you’re a CommBank customer, you can call us on 13 3095 or request financial assistance in NetBank if you are behind, or think you are likely to fall behind, in paying what you owe. See more about our support options – including our Financial Assistance Solutions teams who are here to support you in getting back on your feet in times of financial difficulty.

Up next: How to get into a savings habit.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As the information has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances.