How To Make A Great Debt Payoff Plan

Owen Winkelmolen

Advice-only financial planner, CFP, and founder of

Work With Owen

In the world of personal finance, one of the best feelings is when you become debt free. Once you become debt free it’s like a weight has been lifted, you can breathe a sigh of relief, you’re free!

Creating a debt payoff plan is the fastest way to become debt free. It’s motivating. It’s provides a clear goal. It creates a clear payment plan to follow. But what makes a great debt payoff plan? There are a few important things that a great debt payoff plan should include.

Whether you’re paying off a bunch of credit card debt, or a big line of credit, or a student loan, or just want to see how long it will take to become mortgage free, a great debt payoff plan can make this happen.

What should be included in a great debt payoff plan? These six things are top of our list… (plus you’ll get a sneak peek at our new Debt Payoff Plan which is exclusively for clients to use when creating a financial plan with PlanEasy!)



Different Types Of Payment Strategies: Snowball and Avalanche

There are two main types of payment strategies. One, the avalanche, is mathematically the best way to reduce interest costs and pay off your debt fastest. Two, the snowball, is psychologically the best way to reach your first debt payoff the fastest and then roll those payments into the next debt.

Both payment strategies have their pros and cons. In the majority of cases the Avalanche method is the best. It provides the lowest overall interest payments, which is best for building net worth over the long run.

But for those with many smaller debts, the Snowball method provides a great psychological boost. It feels great to pay off that first debt and then see payments increase against the next debt as you roll those payments forward.

To evaluate both options, a great debt payoff plan should allow you to easily see the difference between both strategies and decide which one is best for you.

(Read more about Snowball vs Avalanche and how each debt payment strategy works)



An Option To Add Extra Monthly Payments

The fastest way to pay off debt is to make extra monthly payments. These are regular payments you make every month against your debt. These are extra payments on top of the minimum monthly payment for each debt. Extra monthly payments could be funded by extra money in your monthly budget, extra income from a second job etc etc.

But where should these extra payments go? What debt is a priority?

A great debt payoff plan will include a detailed payment schedule to highlight where these extra payments should go each month. It should automatically apply these extra monthly payments to your debt according to your payment strategy. A great debt payoff plan should do the work for you and tell you exactly what to do so that you can focus on repaying debt.



An Option To Add Extra Lump-Sum Payments

Another option is to make extra lump-sum payments. These are different than extra monthly payments because they may not happen every month.

An extra lump-sum payment may happen when you have a bit of extra money accumulated, or when you receive an annual bonus from work, or when you receive a quarterly commission check etc etc.

Lump-sum payments are typically larger payments that only happen once in a while.

A great debt payoff plan should allow you to add future lump-sum payments in anticipation of future bonuses, commissions etc etc.



The Ability To Stop Extra Payments At A Certain Point

Not all debt is bad. Some types or debt are actually good!

Government student loan debt is one of those debts that’s not as bad as others. Not only is the interest rate lower, but government student loan debt has certain advantages. This can be helpful when experiencing a job loss and it can also be helpful during recessions or depressions when governments may allow for payment holidays and interest holidays (like we saw in early 2020).

Mortgage debt is also generally considered to be a good debt. Especially now, with interest rates at a record low, most of us shouldn’t be in a hurry to pay off mortgage debt. We want to ensure we’re meeting other financial goals before putting extra payments against the mortgage. This includes maximizing employer matching on pension contributions, maximizing TFSA contribution room, and maximizing RRSP contribution room. These should be a priority before considering making extra payments against the mortgage.

A great debt payoff plan should allow you to avoid making extra payments against these types of debt. We still want to see how these debts get paid off in the future, so it’s important to include them in the debt payoff plan, but we don’t want to plan extra payments against “good” types of debt.

(Read about how we paid off our mortgage early!)



Total Interest Paid & Total Payments Made

How do we evaluate different payment strategies, extra monthly payments, extra lump-sum payments? We can look at total interest paid, and total payments made.

One important metric when evaluating how effective your debt payoff plan is, is to look at the total interest paid. This is the total cost of your debt over the full repayment period. The faster debt is paid off, the lower the cost.

A second important metric is total payments made. This is the total amount going toward debt. It includes both principal payments and interest payments.

A great debt payoff plan should include metrics like total interest paid and total payments made to help evaluate different debt payoff plans.



Months To Full Payoff

The final and perhaps most important part of a debt payoff plan is how many months it will be until full debt payoff.

If debt freedom is an important goal (and it should be for most people!) then this metric is one of the most important to have in a great debt payoff plan.

Becoming debt free is extremely motivating and it’s amazing to see how quickly the “months to full payoff” decreases with extra monthly payments or extra lump-sum payments.

Seeing the number of months drop and drop will make all those sacrifices worth it. Becoming debt free is such an amazing feeling and you can get a bit of that feeling by seeing the number of months until full payoff.



The PlanEasy Debt Payoff Plan

At PlanEasy we want to provide our clients with the best possible advice, so naturally we want to provide them with the best planning tools as well. For clients on our financial planning platform we’ve recently introduced a GREAT debt payoff planning tool.

Clients can work collaboratively with their financial planner to create a great debt payoff plan. They can plan extra monthly payments, extra lump-sum payments, and more.

Best of all they can see exactly how quickly they’ll pay off all their debt and feel motivated by having a clear plan.

Best of all, our Debt Payoff Plan is entirely interactive and can recalculate the best debt payoff plan within a fraction of a second. This makes it extremely easy to see how an extra payment can decrease interest costs and decrease the time to debt freedom.

If you’re interested in building a debt payoff plan as part of a comprehensive financial plan then visit our Services page to see which plan is right for you.

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Owen Winkelmolen

Advice-only financial planner, CFP, and founder of

Work With Owen


Join over 250,000 people reading each year. New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...



Join over 250,000 people reading each year. New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...



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