Learn › Paying off debt

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.

Paying off debt – become debt-free step by step

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.

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.

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.

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.

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.

Related lessons

BudgetingSaving

All lessons · Kontoo does the math and explains – this is general education, not tax, legal or financial advice.

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