A lot of people take on multiple loans to fund their requirements. This can lead to debt accumulation over time. Some of the debt may be good such as a home loan or a car loan since these are secured loans. However, at times, one may be forced to source a high-cost debt in the form of credit cards or personal loans at significantly high-interest rates. This can easily lead to a debt-trap and one may end up having more debt than can be repaid.

While this signals trouble, an individual can still get out of a debt trap by adopting smart financial prudence. Here, we will discuss ways to set up a debt payment plan to help a borrower avoid the dreaded debt trap. 

#1: Start by Making a List of All Ongoing Debts

Before you begin with any strategy, you must be able to access information on all your debts in one place. The list you prepare should include the minimum amount due, the interest rate applicable, and the total amount owed. This list must-have information on all your debt, whether it is credit cards or personal loans or even student loans. If you have borrowed money from family and friends, this too should be included on your list of debt.

Smart Tip - Avoid taking any fresh debt. When you are on the path to set up a debt payment plan, ensure that you avoid any fresh debts. The idea is to come out of the debt trap, therefore, accumulating additional debt will take you on the wrong track.

Additional Reading: Things you must know about debt management plans

#2: Prioritise Your Debts

As a next step, you must organise your list of debts in order of priority. This has to be in the order of paying them off. It is ideal to begin from the smallest amount owed to the largest as this helps to gain a good repayment momentum. 

Another strategy is to organise them as per interest rate, as highest to the lowest. This can help in saving money in the long run as you start paying off debt with higher interest first. Consumer debt generally carries a significantly higher interest rate and hence, it makes sense to begin from here.

Smart Tip – Target the expensive loans first while consolidating your debt. After identifying the most expensive debt, have a strategy in place for repaying the same. Credit card debt is an unsecured loan and if you make the repayment of this first, you will avoid incurring high interest rates. There are also steep penalties associated with it. 

Another idea is to opt for a credit card balance transfer. A balance transfer to a new credit card with a considerably lower rate of interest will benefit you. However, use this option only if there is a considerable interest difference and if you can easily pay off all dues within the promotional period.

#3: Look for Additional Income Sources to Pay Debts

While establishing a debt payment plan, at some point, you have to look for additional income sources to repay the debt faster. This can be done after you have estimated the amount of money available to pay all your debt obligations every month. One of the ways of making more money available for debt closure is to cut back on expenses which can be postponed. Maintaining a strict monthly budget can help in setting aside extra money for debt repayment.

Smart Tip – If you are looking to close your debt faster than estimated, try to increase your income. You can look for additional income-generating opportunities like freelance jobs, part-time work, etc to collect that extra income each month.

#4: Target One Debt at a Time

If you wish to succeed in your debt repayment strategy, you should target paying off the first few debts on the list. Set aside all extra money for these initial important debt payments, while making the minimum payment for the remaining.

Smart Tip – Try debt consolidation as one of the ways to dissolve the debt trap faster. This involves taking a new, lower-cost loan for paying several pending debts which have higher interest rates. With debt consolidation, you will effectively combine multiple debts into a single blanket debt. This strategy opens gateways to favourable repayment terms, lower interest fees and lower EMIs.

#5: Shift to the Next Debt 

After managing to pay off the first debt on the priority list, you must quickly move on to the next one. Quickly switching to the next debt owed will ensure that you can check off all the debts on your list faster than estimated. When you initiate debt repayment, it may seem like a never-ending task, however, as you switch to the next debt, the repayment will gain momentum and you will be debt-free in no time.

#6: Focus on Building Savings

As soon as you complete paying off your debts, try to focus on setting aside savings every month. This will prevent any future build-up of debt and you can avoid a debt-trap. You can also set aside an emergency fund to take better control of your finances.

Additional Reading: Guide to Debt Settlement: How it Works & Potential Risks

Smart Tip – Chalk out a budget and try to stick to it. A budget will help you in avoiding any unnecessary expenses until you are financially comfortable. You can also try to avoid using credit cards unless necessary.

If you are unable to set up a debt plan yourself, you can always seek professional help. You can reach out to professional experts like CreditMantri who can provide their advisory services and design a repayment plan for you. They can help in creating a budget and expenditure limits for better planning. 


Apart from making timely EMIs payments, you can aim for a debt-free future before your loan tenure lapses. A debt payment plan can help you in taking charge of your finances and managing your funds such that you have sufficient money for the future. Begin with small changes while amending your financial habits and this will surely lead you to your financial goals.