In short: List every debt with its rate and payment, then pay off the most expensive first (avalanche) or the smallest first (snowball). Pay more than the minimum and avoid new expensive debt.
Expensive debt slows down any wealth-building. Getting rid of it is often the best “return” you can earn.
List every debt: balance, interest rate and monthly payment.
Avalanche (highest rate first) saves the most; snowball (smallest balance first) motivates faster – both are fine.
Pay more than the minimum and automate the repayment.
Secure your emergency fund first, then pay down consistently – and avoid new expensive debt.
Feeling overwhelmed? A recognised, non-profit debt-counselling service (for example a charity or your consumer advice centre) helps for free and in confidence – even with collection notices, wage garnishment or personal insolvency. Steer clear of commercial firms that charge up-front fees.
What matters
Not all debt is equal: an overdraft at 12 % eats you alive, a subsidised loan at 1 % is far less urgent. Sort by interest rate first, then decide whether the mathematically best order (avalanche) or quick wins (snowball) will keep you going. What matters is staying the course – the best plan is useless if you quit after two months. In a real squeeze, talk to the bank early; a deferral almost always beats a missed payment.
Not all debt is equal: an overdraft at 12% is far more urgent than an instalment loan (often around 7–9%) or a subsidised loan at 1% – pay down by interest rate, priciest first.
Example€1,000 overdraft at 12 % costs €120 in interest a year – money that simply evaporates with nothing in return.
Plan it concretely: the payoff plan in Kontoo shows when you'll be debt-free at a given payment.
At the next level, refinancing is worth a look — but only with honest math. An expensive overdraft (averaging around 11 %, and over 15 % at some banks, as of 2025) can usually be replaced by a cheaper instalment loan (often around 7–9 %), yet the headline rate is only half the story. Watch out for arrangement fees, payment-protection insurance (which noticeably inflates the loan and is rarely needed) and the term — a lower monthly rate over twice the term can cost more interest overall. Always calculate the total outlay: with 5,000 €, what matters is not the monthly figure but the sum of all instalments plus fees. A 0 % instalment purchase or a balance transfer is only a real win if you have fully cleared the balance before the promotional period ends — otherwise a high rate often applies retroactively. And check for early-repayment rights: without them you lose the flexibility to escape faster with future money.
When the money no longer covers it
Avalanche and snowball only work as long as there is something left to pay down — beyond that, a different field begins. If your income structurally cannot cover the minimum payments, “pay more” is no longer advice; the right step is reputable debt counselling. In Germany there are recognised, free services (for example via Caritas, Diakonie or the consumer advice centres), and waiting times of a few weeks are normal. The order of creditors should follow severity, not just interest: rent arrears and energy debts can lead to losing your home or being cut off, while the tax office and health insurer can garnish relatively quickly — these often come before an expensive but “merely” costly consumer loan. A garnishment-protection account (P-Konto) secures the monthly basic exempt amount (around 1,590 €, as of July 2026) if seizure looms. Always respond to payment and enforcement orders within the deadline, even if you cannot pay — silence almost always makes things worse.
The repayment buffer as protection
A classic advanced mistake is throwing every spare euro at repayment and being left with no reserve. When the washing machine then breaks or a back-payment arrives, the expense lands back in the expensive overdraft — and the hard-won repayment was partly for nothing. It usually makes sense to build a small emergency cushion in parallel (around 1,000–2,000 € is often enough at first) before maximising repayment; this buffer is mathematically “expensive” because it costs interest, but it prevents relapse into even costlier debt. Also budget for the irregular items — insurance premiums, the car, gifts — because these are exactly what tears holes in a repayment plan. Combining both — a stable mini-buffer plus consistent repayment of the most expensive debt — keeps you on course even through small shocks, so you never have to start over.
When money is tight: garnishment protection, limitation, refinancing
If an account is garnished, you still need enough to live on. In Germany the garnishment-protection account (P-Konto) does exactly that: it shields a monthly basic allowance from account seizure. From 1 July 2026 this stands at €1,590 per month and rises by €597.42 for each person you owe statutory maintenance to. Anyone can have their own current account converted into a P-Konto at their bank. Second, claims expire. Under § 195 of the German Civil Code (BGB) the standard limitation period is three years, starting at the end of the year in which the claim arose. But beware – a court judgment or default order restarts the clock, then for up to 30 years, so simply waiting out a titled debt does not work. Third, refinancing: several expensive debts, such as an overdraft and a credit card, can be merged into a single, cheaper instalment loan – watch the effective annual interest rate. And your own SCHUFA credit report (a data copy under Article 15 GDPR) is free once a year; you can have errors corrected. In serious cases, turn to a recognised debt-counselling service.
Checklist
List every debt with rate and payment
Choose highest rate first (avalanche) or smallest first (snowball)
Pay more than the minimum
Talk to the bank early in a squeeze
Common myths
Myth: All debt is equally bad.
Reality: A 12 % overdraft is far more urgent than a 1 % subsidised loan.
Myth: Clear all debt first, then build a fund.
Reality: A small buffer first prevents new debt at the next emergency.
Education, not advice. How we work and check figures: Editorial. Figures as of 2026, last reviewed 07/16/2026.
Frequently asked questions
Avalanche or snowball – which is better?
The avalanche (highest rate first) saves the most money; the snowball (smallest balance first) motivates through quick wins. Both work.
Save or pay off debt first?
Build a small emergency fund first, then clear expensive debt consistently – its interest usually beats any safe savings return.
Is consolidating loans a good way to pay off debt?
Consolidation can help if you combine several expensive debts – such as an overdraft or credit-card balances – into a single installment loan with a clearly lower rate. Compare the annual percentage rate rather than just the monthly payment, and factor in any fees. It only works if your total cost actually drops; if you simply stretch the term, you often end up paying more overall.
Which debts count as "expensive" and should go first?
Expensive debts are the ones with high interest, above all an overdraft on your current account and unpaid credit-card balances, which often carry double-digit rates. Consumer and installment loans come next. A low-rate mortgage rarely needs to be paid down early. Sort your debts by interest rate and tackle the top of the list first.
How do I stop taking on new debt again and again?
New debt usually appears when an unexpected cost hits and there is no buffer to cover it. So while you pay down what you owe, build a small emergency fund too, so a car repair or a broken appliance does not land back on your overdraft. Plan larger purchases into your budget and keep the overdraft and credit card out of everyday spending. A simple budget shows early when a gap is coming at month's end.
All lessons · Glossary · Editorial · Kontoo does the math and explains – this is general education, not tax, legal or financial advice.
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