If you have more than one debt, such as a couple of credit cards and a loan, the order you pay them off in makes a difference. The two best-known methods are the debt snowball and the debt avalanche. Here's how each one works, with a worked example, and how to decide which suits you.
This guide explains general approaches to paying off debt. It isn't financial advice. If you're behind on payments or worried about debt, get free, confidential advice from one of the services listed at the end.
First: deal with priority debts
Before choosing between snowball and avalanche, separate your debts into two groups. Priority debts are the ones where not paying can have the most serious consequences, such as losing your home, having your energy cut off or court action. They're not always the biggest debts or the ones with the highest interest. UK debt advice services usually class these as priority debts:
- rent or mortgage arrears
- council tax
- gas and electricity
- court fines
- TV Licence
- child maintenance
- income tax or VAT owed to HMRC
Credit cards, store cards, overdrafts, personal loans and payday loans are usually non-priority debts. Snowball and avalanche are ways of paying off non-priority debts once your priority debts are under control.
The basic rule for both methods
Both methods start the same way:
- Keep paying at least the minimum on every debt, every month, so nothing falls into arrears.
- Work out how much extra you can afford on top of the minimums. Your budget will tell you.
- Put all of that extra money towards one target debt.
- When the target debt is paid off, take everything you were paying on it and add it to the next target.
The only difference between the two methods is which debt you target first.
The debt snowball: smallest balance first
With the snowball method, you target the debt with the smallest balance, whatever its interest rate. Once it's cleared, you move on to the next smallest, and so on.
The idea is that clearing a whole debt quickly gives you a sense of progress, and each debt you clear frees up more money for the next. The payments grow like a snowball rolling downhill.
Good for: people who need early wins to stay motivated, or who have lots of small debts and want fewer bills to manage.
The catch: if your biggest debt also has the highest interest rate, you'll usually pay more interest overall than with the avalanche.
The debt avalanche: highest interest first
With the avalanche method, you target the debt with the highest interest rate first, whatever its balance. Once it's cleared, you move to the next highest rate.
Because the most expensive debt goes first, you usually pay less interest overall and can be debt-free sooner.
Good for: people who are motivated by the numbers and are happy to wait longer for the first debt to disappear.
The catch: if your highest-rate debt has a large balance, it can be months before you clear anything, which some people find hard to stick with.
A worked example
Here's a made-up example with three debts, to show how the order changes. The last two columns show which debt each method pays off first, second and third.
| Debt | Balance | APR | Snowball | Avalanche |
|---|---|---|---|---|
| Store card | £400 | 19.9% | 1st | 2nd |
| Credit card | £2,500 | 29.9% | 2nd | 1st |
| Personal loan | £5,000 | 9.9% | 3rd | 3rd |
Snowball: all your extra money goes to the £400 store card first. You clear it quickly, then roll its payment into the credit card, then the loan.
Avalanche: all your extra money goes to the £2,500 credit card first, because 29.9% is the most expensive rate. It takes longer to clear, but every pound you put towards it saves more interest than a pound towards the store card. Then you move to the store card, then the loan.
In this example, the avalanche costs less in interest, because the credit card is both large and expensive. The snowball gets you your first cleared debt sooner. How big the difference is depends on your balances, rates and how much extra you can pay. If your debts have similar interest rates, the two methods cost much the same, and the snowball's quicker wins may be worth it.
Which method should you choose?
On the numbers alone, the avalanche usually wins. In practice, the best method is the one you'll stick with. Ask yourself:
- Have you tried to pay off debt before and given up? The snowball's quick wins might keep you going.
- Is one debt much more expensive than the others? The avalanche will probably save you a noticeable amount.
- Are your rates all similar? Either works; pick the one that feels better.
Some people mix the two: clear one small debt first for a quick win, then switch to the avalanche.
Tips that help with either method
- Stop adding to the debts you're paying off, or the plan can't work.
- Set up direct debits for at least the minimum on each debt, so you never miss one.
- Keep a small emergency fund, so an unexpected bill doesn't go back on a card.
- Track your progress each month. Seeing the total come down is motivating, whichever method you use.
- Check whether you could pay less interest, for example by asking your lender about your options, but get advice before taking on new borrowing to repay old debt.
Where to get free debt advice
If your payments feel unmanageable, or you're behind on any priority debts, talk to a free, impartial debt adviser before doing anything else. They can help you work out a budget, deal with priority debts and look at options you might not know about. Free UK services include:
- MoneyHelper, the government-backed money guidance service, which can point you to free debt advice
- StepChange, a debt charity
- Citizens Advice
- National Debtline
Be wary of companies that charge fees for debt help; these services are free.