If you want to pay off your debt faster than your current repayment plan, you need to pay more than the minimum repayment.
You may need to start small if your debt repayments are already difficult to manage, but over time as you chip away at your debts, you will be able to make a greater impact.
Remember the sacrifice you make now will ultimately give you more money - you will save on the interest you pay your credit providers and the interest on that interest.
Revisit your budget, look for savings you can make in order to free up money to direct towards your debts. Our Budget Planner may help you with this exercise.
Then decide whether you want to pay off the debt that costs you the most first, or to pay off the smallest debt first.
1. The costliest debt first
If you choose to pay off the highest debt first, you will use what is known as the avalanche method of paying off your debt.
Identify the debt with the highest interest rate and pay an additional amount into that debt until it is paid off.
Take the repayments from that debt and channel them into the debt with the next highest interest rates.
Use our Debt Repayment calculator to see how much you can save in interest by increasing your repayments and how much sooner you can repay your debt.
Repeat until all your debts are paid off and then use your repayments to start saving.
How the avalanche method works
Assume for example, you have:
| Debt | Outstanding balance | Monthly repayment | Term | Interest rate |
| Credit card | R12 000 | R600 | N/a | 19% |
| Car loan | R250 000 | R5 111 | 6 years | 13% |
| Personal loan | R30 000 | R1 080 | 3 years | 16% |
Imagine you are able to find an additional R500 to add to your credit card repayment – that is you pay off R1100 a month instead of R600.
As long as you do not take out more credit, you will pay off the credit card debt a year earlier than if you kept the repayment at R600 and a lot earlier than if you just make the minimum repayment that reduces with your balance.
In a year’s time, when you no longer have credit card debt, you can use the R1100 you were paying towards that debt to increase the repayments on your personal loan.
Increasing the repayments on your personal loan from R1 080 to R2 180 at that stage will reduce your three-year repayment term by one year and one month and save you close to around R1 950 in interest.
At the end of your second year, you can concentrate on paying off only your car loan. It will still have four years to run, but if you channel the R2 180 into that loan each month you can reduce the remaining term to two years and eight months.
By doing so you will save around R18 380, bringing your total interest savings to R21 601.
| Debt | Outstanding balance | Monthly repayment | Interest rate | New monthly repayment | Paid off in | Interest saving |
| Credit card | R12 000 | R600 | 19% | From now R1 100 | One year |
Saving of R1 265 |
| Personal loan | R30 000 | R1 080 | 16% | From a year’s time R2 180 | Two years and 11 months | Saving of R1 956 |
| Car loan | R250 000 | R5 111 | 13% | From two years' time R7 291 | Four years and eight months |
Saving R18 380 |
|
Total |
R21 601 |
2. The smallest debt first
Another way of paying off your debts is to use what is known as the snowball method.
Under this method, you find extra savings to direct towards the debt with the lowest outstanding balance. Use our Debt Repayment calculator to see how quickly you can repay your smallest debt.
When that debt is paid off, you use what you were spending to repay your smallest debt to pay off the next biggest debt. Use our Debt Repayment calculator to see how quickly you can repay your next smallest debt.
Repeat for your next biggest debt.
This method helps you see results quickly and seeing a debt paid off should encourage you to tackle the next biggest one.
The snowball method can help keep you motivated, but it may not save you as much interest as paying off the most expensive debt first under the avalanche method.
A word on debt consolidation
If you have multiple debts, have not defaulted on any of your repayments and your credit score is still good, you can consider consolidating all your debt into a single loan. Read more: What is a debt consolidation loan?
Debt consolidation is a good option if you can reduce the interest you pay and you use such a loan without paying off your debts over much longer terms. The savings you make can be used to repay the debt faster. Read more: Is debt consolidation a good idea?
If you have an access facility on your home loan and you have paid off some of it, you can consider accessing money from your home loan to pay off more expensive debt.
If you do this, keep track of the original terms of the debts you consolidate and try to repay them within the original term. For example, if you consolidate a five-year vehicle loan into your 20-year bond, aim to repay the cost of the car over five years rather than over 20 years.
