Debt avalanche and debt snowball

Debt avalanche and debt snowball methods are two different ways of clearing any money you owe. Debt avalanche eliminates high-interest debt first, while debt snowball tackles the smallest debts first. Finding the best repayment methods depends on your approach to money and your finances.

The debt avalanche method puts money saving first, while the debt snowball method is about quick wins and more frequent milestones. Understanding what motivates you and outlining your long-term goals will  help you to choose between the repayment methods.

Before you start, it’s time to make a list. Write down all of the money you owe, in size order on a piece of paper. Work out whether you can afford to make the minimum repayments on each one, then consider where you could add extra payments to clear the debt faster, from large to small or vice versa.

Making just minimum repayments on money you owe can leave you burdened for a long time, as you only chip away at it slowly. As the interest rates work against you. The following repayment methods tackle your debts more strategically.

There are different debt types you might include: credit cards, loans, store cards, PCP (Personal Contract Purchase) and HP (Hire Purchase). But not all debts necessarily need to be tackled. The way that student loans are paid and the long-term nature of mortgages could mean that you exclude them.

What is the debt avalanche method?

The debt avalanche strategy takes into account the interest rates of your debts and tackles the highest rates first. While this can be time-consuming, taking your bigger debts first, this aggressive repayment method helps you make the biggest interest savings and makes it less expensive in the long-term.

For this method, you pay as much extra as you can afford into your highest-interest debt while keeping the minimum repayments on all your other debts. Once you’ve cleared the first big debt, you move to the next highest interest rate and so on. 

This top-down approach, much like an avalanche, knocks out the big top debt, making the smaller ones listed below easier to clear as your repayment power increases. Remember, list your debts in order of their interest rates, not their balances. A large debt balance with a small interest rate can be tackled later.

The good

• Greater interest savings boost your monthly repayments when high-interest debts are cleared.
• Saves you more money in the long run.

The bad

• This method requires more time and patience to stay motivated for a longer period of time.
• Initial repayments can make a bigger dent in your disposable income.

What is the debt snowball method?

The debt snowball strategy works by tackling your smallest debt balance first and then using those repayments to tackle the next one. Using this method, you can build financial momentum, literally “snowballing” money into your repayments until you’re able to tackle the biggest one.

The debt snowball method can be great for people who find it hard to stay motivated because you get to celebrate milestones more often at the beginning. Remember to list your debts in order of their balances, smallest to largest, not in order of their interest rates.  

To make this method work, pay as much extra as you can afford into the debt with the smallest balance while continuing to make the minimum repayments on any other debts you have. Then use the money that you no longer need to pay on the first debt towards extra repayments on the next one.

The good

• Builds initial momentum and motivation by clearing smaller debts faster
• Listing your debts in order of balances rather than interest rates can be simpler to visualise and organise.

The bad

• Total interest saved can be smaller, meaning that you might pay more in total.
• It can take longer to become debt-free than the debt avalanche method.

Other debt coping strategies

The debt avalanche and debt snowball methods aren’t the only strategies available to you if you’re struggling with your debts. Here are some other things that you can do, alongside these methods, to work towards getting debt-free. 

Debt consolidation loans

Consolidating your debts into a single loan can help simplify your repayments and possibly get better interest rates. Debt consolidation loans are great if you’re feeling overwhelmed by owing money in lots of different places.

Balance transfer credit cards

Similar to consolidation loans, balance transfer credit cards allow you to pay off your debts and hold them in one place, with a single repayment. You may also be able to benefit from an interest-free introductory period to make further interest savings, although be aware of high rates that may eventually kick in.

Paying off debt or saving: Which first?

While it can be encouraging to see your savings build up, paying off debt is often a more important priority. That’s because the interest that you pay on your debts is likely to be far higher than the interest that you earn on your savings. So, clearing debts can boost your saving power in the long run.

Grow your credit score

Growing your credit score can help you to clear your debts. Debt consolidation loans and balance transfer credit cards both require credit checks and may even reward higher credit scores with larger balances and better interest rates. 

Also, lowering your debts can benefit your credit score. By paying off the money you owe, you improve your payment history and reduce your credit utilisation ratio (that’s how much of your available credit you’re using). This helps to grow your credit score, which in turn helps your debt repayment options.

If your debts leave you with no extra money for savings right now, Loqbox can help. Use your regular rent payments to boost your credit score. Just connect your bank account and enter your rent details — we'll handle the rest.

Improvements to credit scores are not guaranteed. 

Debt avalanche & debt snowball: Which is right for you?

Both the debt avalanche and the debt snowball methods offer great options for paying off your debts. Choosing the right strategy for you depends on your goals and how you tend to manage money. 

• The debt avalanche is great for savers who have good motivation as they benefit from the total interest saved. 
• The debt snowball may be better suited for people who need help staying motivated with more regular initial milestones and faster results.

Whichever option you choose, remember that you’re not alone in your debt repayment journey. Don’t be afraid to reach out for help and try not to bottle up your worries. Debt advice charities like the National Debtline and  StepChange can offer support. For a full list, check the government debt advice page.