Why Your Debt Payoff Plan Isn’t Working (and How to Fix It)

The first step to getting rid of your debt is often creating a debt payoff plan. Even with a plan, however, you may feel like debt relief is out of reach. That's because making a debt payoff plan is often a lot easier than sticking with it for the long term.

Struggling with your debt payoff plan is no reflection on you or how hard you work. It also doesn't mean you aren't trying hard enough. Getting rid of debt can be a big challenge even under the best of circumstances. If you're struggling, give yourself some grace and a pat on the back for making the effort.

Now all you need to do is figure out why your plan isn't working and how you can fix it. Here are a few key reasons your plan may not be panning out—along with some tips on how to get onto firmer financial footing.

Your Plan Is Unrealistic

An unrealistic plan is one of the most common reasons a debt payoff plan doesn't work. 

Let’s say you plan to create a budget that slashes spending to $0 so you can pay more toward your debt. You’re most likely going to find it next to impossible to spend nothing, since everyone has essential expenses. A zero-spend budget is unrealistic.

While this is an extreme example, it's not uncommon for people to set unrealistic goals that will be hard to reach. To fix this and make sure your plan is one you can follow through on, you may need to evaluate what’s within reach.

The fix 

A good way to get started on a realistic debt payoff plan is to track your spending. When you have a baseline for where your money is going,  you can then make reasonable cuts that you can stick to.

Try one of the many online apps to track your spending by linking your credit cards and bank account. Or you can keep receipts and write down what you buy and upload everything into a spreadsheet. If a spreadsheet feels too fancy and complicated, you can simply jot down your spending in a small notebook. Just think about what will work for you.

Next, look for ways to cut spending that you’ll be able to carry out. For example, you realize your grocery budget has been running at about $1,000 a month. If you commit to being more mindful of sales and couples, you could potentially cut it back to $900 so you can pay an extra $100 in debt.

Smaller cuts are often more sustainable. Taking a drastic measure, like scaling your grocery spend down to just $500 a month, probably wouldn’t be doable. But trimming $25 a week is a far more realistic and attainable goal.

You Don't Have an Emergency Fund 

No emergency fund could be a big reason your debt payoff plan may not work. That's because life frequently throws emergency expenses at you. Many people experience them fairly regularly.

Over a few months or a few years of paying off your debt, things are inevitably going to go south. That’s just the way life is. You may have to suddenly pay for any of the following:

• Car repairs

• New dishwasher 

• Unexpected medical bills from your child’s illness

Whatever the surprise expense, it could be a problem if you don't have an emergency fund.

Without an emergency cash cushion, chances are good you'll turn to credit cards or another form of debt. And having to suddenly start borrowing again could set your plan back in two ways:

1. Borrowing more money will mean you dig deeper into the hole. It could be harder to get rid of debt because of it. 

2. Equally important, taking on more debt could lessen your debt payoff motivation. 

Neither outcome is desirable.

The fix

An emergency fund of any size can come in handy. If you don’t have any money stashed away for unexpected expenses, it’s fine to start small—even $250 or $500 could help out in an emergency. Commit to saving a few dollars a week and watch your balance grow. 

A small emergency fund with at least a thousand dollars to cover a surprise expense could help you avoid falling back into debt when you’re working on getting rid of it.

Prioritize creating a small emergency fund before paying extra to your creditors, but keep on making minimum payments. You can also put windfalls into this account or try to earn a little extra money to save it up quickly.  

Then, leave the money alone in a high-yield savings account until a true emergency.

By setting aside a financial cushion even while you’re paying off debt, you’ll continue your momentum instead of having to borrow. You could cover your surprise expense and get back on track quickly to continue debt payoff.

You Have Too Many Other Obligations

Your debt payoff plan may also be failing if you simply have too many other financial obligations and can’t devote enough money to becoming debt-free.

If you want to pay off your debt in a reasonable time frame, you typically need to pay more than the minimum due. Otherwise, most or all of your payments will go to interest. Repaying your debt that way is harder and will take longer.

Take a look through your budget to get a sense of all your obligations. One popular budgeting method suggests 50% (or less) of your money goes for fixed essential expenses like housing and utilities. Another 30% should go to discretionary spending (things you want), and another 20% should go to debt payoff and savings.

The fix

If you're spending too much in other categories, you can't make real progress on your debt payoff. See if there’s a way to eliminate some other obligations.

For example, you could trim some spending in areas like dining out. Or you can make big cuts, like moving to a cheaper place or getting a cheaper used car. This would free up money every month to make your debt payoff plan a success, but moving is often complicated and expensive.

An in-between method could be as many small spending cuts as you can manage. Consider taking a close look at:

• Monthly streaming services

• Gym memberships

• Food delivery

• Convenience items

• Bottled water

The key is to do something to make sure all your obligations don't make it harder to become debt-free and improve your finances. 

You Haven't Automated the Process

Automating means you make things happen automatically. For example, if you want to pay a set amount each month toward your debt, you can set up that amount to come out of your checks on payday.

Automating debt payoff plans often makes good sense because then you don't have to rely on remembering to move money or decide between debt payoff and something instantly gratifying. You can't spend the money you were planning to put toward debt payment if it is sent to your creditors before you have a chance to make a different choice.

The fix 

You can set up autopay with your bank or with your creditors. If possible, aim to establish an automatic payment for more than the minimum balance. This should help your debt balance decline faster. If you have a month where money seems tighter than usually, you can always change your autopay for an amount that gives you more breathing room in your budget. 

You Have Too Much Debt 

If you have more debt than you can realistically pay back, then no debt payoff plan is going to really make sense for you. The math simply won't work. 

If your debt is substantially bigger than your salary, it would take you far too long to pay it off, especially as the interest payments would make it hard for you to make progress.

The fix

If this is your situation, consider looking into your debt relief options. One popular strategy for dealing with unaffordable debts is debt settlement. If you have a lot of unsecured debt, like credit card debt, settlement could allow you to repay less than the full balance you owe and get the rest of your debt forgiven.

Settlement is intended for people who are struggling with financial hardship and can't afford to repay their unsecured debts. If you’re struggling to make payments and creditors think they'll get paid nothing at all, they may be willing to accept less than the full amount. 

Once you've settled your debts, you may find it easier to get back on firmer financial footing. Debt settlement may be the right strategy if you've tried other payoff plans and just can't make it work.