Paying Off Debt

Not all debt is equal. The priority of paying it off depends almost entirely on the interest rate.

High-interest vs. low-interest debt

Rule of thumb: pay off any debt costing more than ~5% before investing. Below that rate, the expected return from long-term equity investing (historically ~7% real) likely exceeds the interest saved.

UK student loans

UK student loans are income-contingent and written off after 30–40 years. Most graduates with Plan 2 or Plan 5 loans will never fully repay them. Making voluntary overpayments is often a mistake. Check the ukpersonal.finance student loan guide before overpaying.

Payoff strategies

Once you have a list of debts to eliminate, choose a strategy for extra payments beyond the minimums.

Avalanche (mathematically optimal)

Pay minimums on all debts, then throw every extra pound at the highest-interest debt. When it is gone, roll that payment into the next highest. Saves the most money in interest.

Snowball (psychologically motivating)

Pay minimums on all debts, then target the smallest balance regardless of interest rate. Quick wins build momentum. Costs slightly more in interest but works well if motivation is the challenge.

Hybrid

Eliminate any very small balances first (snowball) to reduce the number of accounts, then switch to avalanche for the remaining debts.

Tracking debt in WealthMgr

1. Add each debt as an account: go to Accounts → Add account, set type to Liability and choose the subtype matching the debt (Credit Card, Loan, Mortgage, Family Loan).
2. Set the actual balance to the outstanding amount owed.
3. Record payments: a liability carries the amount you owe as a negative balance (owing 500 shows as -$500.00), so the balance climbs toward zero as you pay the debt down — use the account’s Set actual balance action to record the new outstanding amount after a payment (enter it as the positive amount owed, exactly like the create form).
4. Create a recurring rule for the minimum payment so it runs automatically each month.
5. Use Reports to chart the liability balance climbing toward zero as the debt is paid down.

After debt is paid off

Once high-interest debt is eliminated, redirect those monthly payments to:

1. Building your full emergency fund (if not already done).
2. Increasing pension contributions.
3. Saving for medium-term goals.
4. Investing in a Stocks & Shares ISA.