How to manage debts — repayment strategies and getting out of debt

Poles and debts — scale of the problem

NBP data (2026):

• 78% of households have some financial obligations
• Average debt: PLN 184,000 per household
• 23% of Poles have problems with debt repayment
• Highest interest rates: credit cards (15-25% annually)

Most common debts:

1. Mortgage loan (65% of debtors) — average PLN 420,000
2. Personal loan (34% of debtors) — average PLN 28,000
3. Credit cards (29% of debtors) — average PLN 8,500
4. Car loan (18% of debtors) — average PLN 45,000

Good debts vs bad debts

Good debts (leverage) — can bring benefits

Mortgage loan:

• You acquire an asset (apartment can increase in value)
• Low interest rates (6-8% annually)
• Long repayment period (20-30 years)
• Inflation protection (debt loses real value)

Investment loan:

• Education (MBA studies increase earnings)
• Business (generates revenue above cost of capital)
• Work tools (car for a salesperson)

Bad debts (consumer debt) — only costs

Credit cards:

• High interest rates (15-25%)
• You credit consumption (things that lose value)
• Easy to spend uncontrollably

Personal loans:

• High costs (12-20% + fees)
• Short term (high installments)
• Often for unnecessary things

Non-bank loans:

• Extreme interest rates (100-500% annually!)
• Debt spiral
• No consumer protection

Strategy #1: Debt Avalanche

How does the avalanche method work?

Rule: Pay off first the debts with the highest interest rate, regardless of amount.

Application example:

Sample Kowalski's debt:

Available amount for payments: PLN 3,800 monthly

Debt Avalanche repayment plan:

Step 1: Pay minimum on all debts

• Minimum total: PLN 3,320
• Surplus for avalanche: PLN 480

Step 2: All surplus on credit card (highest interest rate)

• Card payment: 320 + 480 = PLN 800

Step 3: After paying off card (11 months), all its payment on personal loan

• Personal loan payment: 450 + 800 = PLN 1,250

Step 4: After paying off personal loan (15 months), on car loan

• And so on...

Debt Avalanche advantages:

✅ Mathematically optimal — lowest interest cost ✅ Shortest total repayment ✅ Greatest long-term savings

Disadvantages:

❌ First repayment can take long (less motivation) ❌ Requires discipline without quick successes

Strategy #2: Debt Snowball

How does the snowball method work?

Rule: Pay off first the smallest debts, regardless of interest rate.

Same example — Debt Snowball plan:

Repayment order:

1. Credit card — PLN 8,000 (smallest amount)
2. Personal loan — PLN 15,000
3. Car loan — PLN 35,000
4. Mortgage — PLN 280,000

Debt Snowball advantages:

✅ Quick successes — first debt paid off quickly ✅ Psychological motivation — you see progress ✅ Simplicity — no need to calculate interest

Disadvantages:

❌ Mathematically more expensive — more interest to pay ❌ Longer total repayment

Strategy #3: Debt Consolidation

When does consolidation make sense?

Scenario: You have multiple high-interest debts

Example before consolidation:

• Card 1: PLN 5,000 (20%)
• Card 2: PLN 3,000 (18%)
• Personal loan: PLN 10,000 (15%)
• Average interest rate: 17.2%

After consolidation:

• One loan: PLN 18,000 (10-12%)
• Savings: 5-7 p.p. annually

Types of consolidation:

Bank consolidation loan:

• Interest rate: 8-15%
• Requirements: stable job, good credit history
• Advantages: one debtor, one payment

Mortgage refinancing with cash-out:

• Interest rate: 6-8%
• Requirements: own apartment with equity
• Risk: apartment as collateral

Balance transfer credit card:

• Promotional 0% for 6-12 months
• Then standard interest rate
• Risk: returning to old habits

When is consolidation a BAD idea?

❌ You don't solve the cause of debt (excessive spending) ❌ You extend repayment period without reducing total cost ❌ "Space is freed up" — new debt on old cards ❌ Hidden consolidation costs exceed benefits

Strategy #4: Creditor negotiations

When is it worth negotiating?

Situations:

• Temporary financial problems (illness, job loss)
• Before falling into arrears
• Long-term insolvency

What can you negotiate?

Interest rate reduction:

• Particularly effective with credit cards
• "Competitive rate" — referring to competitor offers
• Argument: "long-term client with good history"

Payment schedule change:

• Period extension (smaller payments, higher total cost)
• Payment holidays (postponement of 1-6 payments)
• Interest-only period (only interest for several months)

Settlement for part of the sum:

• Only in case of deep financial problems
• Bank accepts e.g. 60% of debt as full payment
• Warning: negatively affects credit scoring

How to conduct negotiations?

Preparation:

1. Document all debts — amounts, interest rates, payments
2. Household budget — how much you can realistically pay
3. Repayment plan — concrete proposal for bank

During conversation:

• Be honest about financial situation
• Present concrete proposal, not "help me somehow"
• Ask to speak with specialist for difficult clients
• Confirm everything in writing

Getting out of debt — comprehensive plan

Stage 1: Financial audit (1 week)

List of all debts:

Budget analysis:

• Net income: ___ PLN
• Necessary expenses: ___ PLN (housing, food, transport)
• Optional expenses: ___ PLN (entertainment, hobbies)
• Minimum debt payments: ___ PLN
• Surplus for additional payments: ___ PLN

Stage 2: Stop new debts (immediately)

Radical steps:

• Hide credit cards (leave one for emergency with PLN 1,000 limit)
• Remove payment data from online stores
• Cancel subscriptions you don't actively use
• Cash budget for variable expenses

Stage 3: Choose repayment strategy

Debt Avalanche — if you are disciplined and think long-term Debt Snowball — if you need motivation and quick successes Consolidation — if you have multiple high-interest debts

Stage 4: Increase repayment surplus

Reduce expenses:

• Housing: rent out a room, move to cheaper location
• Transport: sell car, use public transportation
• Food: cook at home, avoid restaurants
• Entertainment: free events, library instead of cinema

Increase income:

• Freelance work on weekends
• Sell unnecessary items (Allegro, OLX)
• Freelancing (translations, graphics, tutoring)
• Extra hours at current job

Stage 5: Payment automation

Standing orders:

• The day after salary
• First debts, then life
• Automatic — without spending temptations

Debt management mistakes

1. Paying only minimum

Problem: PLN 10,000 debt on card with 2% minimum payment takes 61 years to pay off

Solution: Always pay more than minimum, even extra PLN 50 has huge impact

2. Lack of plan and chaotic payments

Problem: You pay "whatever you can each month"

Solution: Choose specific strategy (Avalanche or Snowball) and stick to it

3. Taking new debts while paying off old ones

Problem: "I pay card A with card B"

Solution: Radical stop of all new debts

4. Focusing only on installments, not total cost

Problem: Extending loan from 5 to 10 years "to make installment smaller"

Solution: Total cost matters, not installment size

Alternatives for people in deep debt

Financial counseling

Where to seek help:

• Consumer Federation — free counseling
• Municipal offices — civic counseling points
• NGOs — support for debtors

Bankruptcy procedures

Consumer bankruptcy:

• Conditions: debt above PLN 200,000, inability to pay
• Effect: possibility to "zero out" debts after 3-7 years
• Cost: ~PLN 15,000 + restrictions on credit access

Restructuring proceedings:

• Alternative to bankruptcy
• Payment plan spread over 36 months
• Possibility to reduce debts by 25%

How to prevent debt in the future?

Early warning system

Red flags: 🚨 You pay only minimum on credit cards 🚨 You take new debts to pay old ones 🚨 Your loan payments > 40% of net income 🚨 You have no savings 🚨 Stress related to finances affects sleep/health

Building financial resilience

Emergency fund:

• 3-6 months of expenses in account
• First line of defense against debts

Insurance:

• Job loss
• Sickness
• Health — covering sudden medical costs

Multiple streams of income:

• Not all eggs in one basket
• Additional income sources as security

Summary

Debt management is a marathon, not a sprint. The key is choosing the right strategy and consistently implementing it.

Key steps: ✅ Break the spiral — stop new debts ✅ Choose strategy: Debt Avalanche (mathematical) or Snowball (psychological) ✅ Automate payments — eliminate spending temptation ✅ Increase surplus — less expenses, more income ✅ Long-term plan — building financial resilience

Remember: Getting out of debt is not just mathematics, but also psychology. Choose a method you can stick to for months or years.

Use tools like Freenance to track all debts, plan payments and monitor progress — comprehensive view of financial situation in one application.