The Debt Snowball Method
The debt snowball focuses on eliminating debts from smallest to largest balance - regardless of interest rate.
- List all debts from smallest to largest outstanding balance
- Make minimum payments on every debt
- Put every extra pound you can afford at the smallest debt
- When the smallest debt is paid off, roll its full payment to the next smallest
- Repeat until all debts are cleared
Paying off a debt completely - however small - creates a genuine sense of achievement. Research by academics at the University of Michigan found that people who focus on one debt at a time (regardless of interest rate) are more likely to eliminate all their debt than those who spread payments across debts.
The Debt Avalanche Method
The debt avalanche is the mathematically optimal approach. You target the highest interest rate debt first - saving the maximum amount of money overall.
- List all debts from highest to lowest interest rate (APR)
- Make minimum payments on every debt
- Put every extra pound at the highest-rate debt
- When it is paid off, roll its payment to the next highest rate
- Repeat until all debts are cleared
The avalanche saves more money because you are eliminating the most expensive debt first - every month you carry high-interest debt costs you significantly more than carrying low-interest debt of the same size.
Side-by-Side Example: Same Debts, Different Methods
Imagine you have three debts and £300/month total to put toward repayment (minimum payments covered):
| Debt | Balance | APR | Min Payment |
|---|---|---|---|
| credit card A | £800 | 28% | £25 |
| Personal loan | £3,200 | 12% | £80 |
| Car finance | £6,000 | 6% | £120 |
Pay: Card A - Loan - Car
Card A (smallest) cleared first. Motivational win quickly. Costs slightly more in total interest because the 6% car loan is cleared last, but the 28% card is gone in roughly 4 months.
Pay: Card A - Loan - Car
In this example, the smallest debt and highest rate are the same (Card A at 28%). Both methods produce identical results here - when the highest-rate debt is also the smallest, both strategies agree.
The strategies diverge when the highest-rate debt is also the largest. In that scenario, the snowball would clear a small low-rate debt first for a quick win, while the avalanche would work at the large high-rate debt - potentially for years before the first payoff.
Which Should You Choose?
You need motivation
You have tried paying off debt before and given up. You have several small debts you could clear quickly. Psychological momentum matters more to you than mathematical optimisation.
You are disciplined
You can stay committed to a long-term plan without needing quick wins. You have a high-interest debt (credit card, payday loan) that is costing you significant money monthly.
Many debt advisers recommend a hybrid: use the snowball to clear any very small debts quickly (anything under £500), then switch to the avalanche for the remaining larger debts. You get the initial motivation boost without sacrificing much mathematical efficiency.
Before You Start Either Method
- Build a small emergency fund first - £500-£1,000 in easy-access savings. Without this buffer, any unexpected expense sends you back into debt immediately.
- Stop adding new debt - cut up or freeze the credit cards you are paying off. Both methods fail if you are adding to the balance faster than you are paying it.
- Check for balance transfer options - if you have high-interest credit card debt, moving it to a 0% balance transfer card first can save hundreds and accelerate either strategy.
- Check if overpaying has penalties - personal loans sometimes have early repayment charges. Confirm before directing extra payments.