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

Quick Answer

To get out of debt, first stop taking on new debt, then attack the balances with a clear strategy. The two main methods are Debt Avalanche (pay the highest interest rate first — mathematically cheapest) and Debt Snowball (pay the smallest balance first — best for motivation); consolidation can help if it lowers your 17%+ average rate to 10-12%. Tackle the worst first because credit cards run 15-25% annually and non-bank loans can hit 100-500%. Always pay more than the minimum (a card at the 2% minimum can take 61 years), automate payments the day after salary, and keep loan payments under 40% of net income.

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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.

FAQ

What is the difference between the debt snowball and debt avalanche methods?

The avalanche method targets the debt with the highest interest rate first, minimising total interest paid over time. The snowball method targets the smallest balance first, generating quick wins that sustain motivation. Avalanche is mathematically cheaper, snowball is psychologically easier — the best method is the one you will actually stick to.

Should I pay off debt before investing?

As a rule of thumb, debts with interest rates above 8-10% should usually be cleared before serious investing, since few portfolios reliably deliver after-tax returns above that threshold. Lower-rate debts such as mortgages can often run in parallel with investing. This is a general framework, not personal financial advice.

Is debt consolidation always a good idea?

Consolidation can lower the average interest rate and simplify payments, but it only helps if the underlying spending behaviour changes. If old credit lines are reused after consolidation, total debt grows and the move backfires. Read the full cost — fees, term extension, total interest — before signing.

How big should an emergency fund be while paying off debt?

A starter buffer of 1-2 months of essential expenses is usually enough during aggressive repayment, so unexpected costs do not push you back into high-interest borrowing. After the worst debts are cleared, expand the fund to the standard 3-6 months. Without any buffer, a single car repair can undo months of progress.

When should someone consider consumer bankruptcy or a debt counsellor?

Warning signs include debt payments exceeding 40% of net income, repeatedly borrowing to service older debts, or genuine insolvency that no realistic budget can fix. Free advice from consumer-protection bodies or licensed counsellors is the right first step before any legal procedure. Bankruptcy has long-lasting credit consequences and should be a last resort, taken with professional guidance.