Blog / How to get out of debt: a practical start
How to get out of debt: a practical start
Debt is hard to think about clearly. The total feels vague, the statements go unopened, and the same minimum payments leave your account each month without much changing, even though paying something every month takes real effort. The way out is a plan you can follow. A few decisions, made once and then repeated as your income and costs change, will do more than a burst of effort you cannot sustain. The plan that lasts is usually the modest one. This article covers how to list what you owe, the two repayment methods most people choose between, how to pick one and switch later if it stops working, and what to do when the minimum payments become genuinely unaffordable. Everything here is general information about how debt repayment works, not advice about your own situation. The right answer depends on details and circumstances only you can see.
Write down every debt before you decide anything
Before you can pay anything down, you need an accurate picture of what you owe, because a rough idea is not enough to base decisions on. Write down every debt, including credit cards, personal loans, car loans, student loans, buy-now-pay-later balances, any overdraft, and money you owe to family or friends. For each one, record four things: the outstanding balance, the interest rate, the minimum payment, and who you owe it to. Most people carry more debts than they can list from memory, and the rates differ widely. That matters because the rate decides how quickly a balance grows while you leave it alone. Minimum payments deserve a closer look too. A minimum set low against a large balance will barely reduce the debt, so a card can sit stubbornly flat even while you pay it every month. Keep paying at least the minimum on everything so no account falls behind, and only then decide which debt gets money above its minimum.
Work out how much spare money you really have
Income minus essential costs gives you the surplus you can put toward debt, and that surplus is the engine of the whole plan. Essential costs are the ones that keep a roof over you, food on the table, the lights on, and your transport running. Everything above that is a choice, even when it feels fixed. Add up what comes in over a month, subtract what must go out, and see what is left. That gap is your spare capacity, and it may be smaller than you hoped, which is better known now than discovered later. Money that arrives once, such as a tax refund, a bonus, or cash from selling something you no longer use, can go straight at a debt. So can a cancelled subscription or a cheaper phone plan. The trade-off is real: cutting spending to the bone usually fails within months, so choose reductions you can live with. If the surplus is close to nothing, the priority shifts from paying debt faster to bringing in more or cutting one large fixed cost.
The avalanche method puts the highest rate first
The avalanche targets the debt with the highest interest rate first, while you keep paying the minimum on every other debt. When the highest-rate debt is cleared, you take the payment you were making on it and add it to the next highest, then the next, working down the list. Nothing is wasted, because the most expensive debt shrinks fastest. This is the cheaper method on paper. Interest is charged on whatever balance you carry, so removing the most expensive balance first reduces the total interest you pay and can shorten your time in debt. The catch is motivation. If your highest-rate debt is also your largest, you may not clear a single account for a long stretch, and a plan that feels like nothing is happening gets abandoned. If a distant payoff date still keeps you going, the avalanche is the stronger choice. If it leaves you discouraged, the arithmetic advantage will not matter, because you will stop.
The snowball method clears the smallest balance first
The snowball ignores interest rates and attacks the smallest balance first, then the next smallest, whatever the rates are. Its strength is momentum: clearing a whole account, even a modest one, produces a visible win and frees a payment you can roll into the next debt. The trade-off is cost. Because you are not prioritising the most expensive debt, you will usually pay more interest than the avalanche would charge over the same period. That extra cost buys something real, which is a plan you are more likely to finish. People who have stalled on debt before, or who need to see progress, often stay with the snowball where a pure rate-first plan would have ended in another abandoned spreadsheet. Neither method demands purity. You can clear one small account for the momentum, then move to the highest rate with the freed payment, and the two approaches will work together.
Choosing a method, and switching when life changes
Pick the method you will still be using in six months, because consistency matters more than the difference between the two. If you are motivated by cost and can wait for a distant win, take the avalanche. If you need early proof that the plan is working, take the snowball and treat the extra interest as the price of finishing. A blend is legitimate: knock over one small debt to build momentum, then switch to the highest rate. What you should not do is change methods every time you read something new, or restart your list because the balances moved. Review the plan when something real changes, such as a new job, a rent increase, or an unexpected expense, and adjust the amount you pay rather than the strategy. Debt repayment is mostly a series of ordinary payments made over a long time. The plan that survives contact with a normal, imperfect month is the right one for you.
What to do when progress stalls
Some months the balances barely move and the plan starts to feel pointless. That is usually a signal to change the amount, not the method. Two stalls are common. The first is a surplus that did not survive contact with real life, because a repair, a school cost, or a quiet rise in a regular bill absorbed the money before the debt saw it. The second is a payment set in an unusually good month that has been quietly missed ever since. Both are fixable. Lower the payment to a level you can hold every period without heroics, even if that slows progress for a while, and send anything extra that arrives at the target debt as it comes. If you have not touched the plan in months, restart from your current balances rather than the ones you first wrote down. This is general information, not advice for your situation.
A small example
Say you owe $2,000 on a high-interest card and $800 on a lower-interest personal loan. The snowball sends any spare money at the $800 loan first, so you clear it quickly and get a visible win that keeps you going. The avalanche sends the same spare money at the $2,000 card instead, because that is the balance charging you more in interest, and it leaves the cheaper loan on its minimum. Over a year the avalanche usually costs you less in interest, while the snowball usually clears one account sooner. That is the whole trade-off in one small case. If the quick win is what keeps you paying, the snowball wins for you despite costing a little more. If you can hold your nerve through months of no visible progress, the avalanche saves money. You can also start with the small loan for the early win, then switch the freed payment to the card.
Consolidating debt and moving a balance
Consolidation means replacing several debts with one, usually a single loan or a balance moved onto one facility. It can simplify your life, and if the new rate is lower than what you were paying it can reduce the cost of the debt you carry. What it does not do is reduce the debt itself. You still owe the same amount, and moving it somewhere tidier does not change what you spent. Two traps sit here. First, stretching a balance over a longer term can lower the monthly payment while raising the total interest you pay, so compare the total cost rather than the repayment. Second, consolidating cards onto a loan can free up the card limits, and if you spend on those cards again you end up carrying both the new loan and a fresh balance. Read the fees and terms carefully before signing anything. Consolidation can be a genuine step forward, but it works best once your spending is under control.
Protect your buffer and your retirement
Two things are worth shielding while you pay debt down. The first is a cash buffer, because a plan with no cushion collapses the moment the car needs a repair or a bond payment lands, and the repair usually goes onto the card you were trying to clear. Aim for a buffer covering several months of essential costs, built slowly alongside your repayments if that is what it takes. The second is your retirement savings. Accessing them early is tightly restricted and generally reserved for specific hardship situations, so it is not a tap you can turn on when a card balance feels uncomfortable. Even where it is possible, trading money that has decades to grow for a debt you could clear with a few years of steady payments usually leaves you worse off over the long run. Deal with the debt from your income, and leave your retirement savings alone unless there is genuinely no other option.
When the minimums become unaffordable
If you cannot cover the minimums, stop trying to solve it alone and use the help that exists. Contact your lenders before you miss a payment rather than after, explain the situation, and ask what hardship arrangements they can offer. Lenders have processes for people in difficulty, and an arrangement agreed in advance is almost always better than a missed payment and a default. Free and independent financial counselling is available in Australia, separate from the lenders, and a counsellor can help you map your debts, prioritise what matters, and negotiate on your behalf. That is not the same service as a debt-management company that takes a fee out of your repayments. Be wary of anyone offering a fast fix at a high cost, including short-term loans used to cover existing debt, which tend to deepen the problem rather than solve it. Getting help early is the difference between a difficult period and a much longer one.
Questions
Is this personal financial advice?
No. This is general information about how debt repayment works, not advice about your own situation. The right approach depends on your debts, your income, your interest rates, and what else is going on in your life, and those details belong to you. The methods described here are widely used ways of organising repayments and nothing more. Before you make a decision with real consequences, consider talking to a qualified financial professional who can look at your full picture.
What if I can't even pay the minimums?
Reach out for support rather than letting the accounts fall behind quietly. Contact your lenders and ask about hardship arrangements, and speak to a free financial counsellor, who is independent of the people you owe money to. A counsellor can help you work out which debts are most urgent and can negotiate with lenders on your behalf. Missing payments without saying anything damages your record and adds fees, while an arrangement agreed in advance gives you room to breathe.
Should I keep savings while I pay off debt?
For most people, yes, at least a small buffer. Repaying debt with every spare dollar leaves nothing for the flat tyre, the dentist, or the broken appliance, and those costs usually end up on a card, which puts you back where you started. A modest buffer makes the repayment plan more likely to survive an ordinary bad month. The size depends on your situation, your job security, and who depends on you, and there is no single right answer.
Do I have to choose one method and stick to it?
No. The avalanche and the snowball are tools rather than rules, and plenty of people use a mixture, clearing the smallest balance first for an early win and then switching to the highest interest rate. What matters more than which method you start with is that money above the minimums keeps going out every period without you having to decide again. Review the plan when something real changes, such as a change in income or a new regular cost.
General information, not financial advice.