There’s no escaping the fact that we’re living in financially tough times due to the cost of living crisis, and many of us have needed to borrow money to make ends meet.

The average UK household is currently around £65,000 in debt, and with borrowing costs much higher than they’ve been for years, it’s really important to stay on top of what you owe.

Starting to repay debts can feel overwhelming if you aren’t sure where to start, but there are certain methods, such as snowball or avalanche repayments, which may help make it less intimidating.

Here we explain what these methods involve and some of their pros and cons.

What is snowball debt repayment?

Snowball debt repayment is where you pay your debts off one by one in size order, starting with your smallest debt and working your way through to your largest one.

You will make the minimum repayments on all of your debts throughout, apart from the smallest one, which you’ll put as much money as you can afford into. Once the smallest debt is repaid, you take the money you were paying into it and roll it into the next debt on your list, so the amount you are able to repay will grow as you approach your larger debts.

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How do I get started with snowball debt repayment?

To use the snowball repayment method, you’ll need to start by making a list of all your debts and noting down the amount you owe, the interest rate you’re paying, the minimum monthly payments and their due dates.

You then need to take this list and put your debts in order from the lowest amount owed to the highest, so the debt at the top of your list will be the one that you owe the least on and is the one you’ll focus on paying off first.

Add up all the minimum monthly payments for all of the debts on your list, and work out how much you can afford to put into your smallest debt in addition to the minimum payment.

Start making your payments as planned and you should see your smallest debt reduce in size more rapidly than your other debts. Once you’ve fully paid off the smallest one, you can take the money you were putting into that debt and roll it into the next one along with the money you were putting into the minimum payment.

Eventually, you should have repaid all of your debts, and by the time it comes to tackling the larger debts on your list, you will be able to make larger monthly repayments (as you will have snowballed all the other minimum payments into it). You’ll also have created a habit out of debt repayment, which might make it a little easier to approach each month.

What are the advantages of snowball debt repayment?

The big advantage of snowball debt repayment is the motivation it can provide. Ticking debts off your list one after another can create a real sense of relief and achievement as well as providing the motivation to keep going.

It’s also a great method for people who feel overwhelmed when it comes to finances. Rather than feeling like you have to deal with all of your debts at once, the snowball method allows you to tackle your debts one by one.

What are the disadvantages of snowball debt repayment?

The main disadvantage of snowball debt repayment is that you can end up paying more in interest than you would with other repayment methods.

Generally, the snowball method suggests that you repay your debts in order of the total amount owed for each one, but this could mean that if you have a larger debt with a high interest rate, leaving it till last could rack up bigger interest charges than if you tackled it first.

If you have debts with particularly high interest rates, it could be worth considering the avalanche method instead.

What is avalanche debt repayment?

The avalanche method is the opposite of the snowball method. So instead of paying the debt with the lowest total amount owed first, you’ll pay off the debt with the highest interest rate first. 

The idea is that you’ll tackle the debts with the biggest impact first and then work your way down the list to the ones that are likely to cost you less over time.

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How does avalanche debt repayment work?

Much like the snowball method, you start the avalanche debt repayment method by making a list of all of your debts, outlining the amount you owe, the interest rate you’re paying, the minimum monthly payments and their due dates.

You’ll then put this list in order of interest rates, running from high to low. At the top of your list will be the debt that has the highest rate of interest, even if it doesn’t have the highest balance, and this is the one you’ll focus on paying off first.

As before, you’ll pay the minimum payments on everything apart from your main debt which you will put as much cash as you’re able into. Once you’ve paid off a debt, you’ll roll any payments you were making into the next most expensive debt, and continue like this until your debts are fully repaid.

What are the advantages of avalanche debt repayment?

The main advantage of avalanche debt repayment is that it helps to minimise the amount of money you’ll need to pay in interest as you’ll tackle the debts with the highest interest rates first.

What are the disadvantages of avalanche debt repayment?

While the avalanche method is definitely the more cost-effective and efficient debt repayment method of the two we’ve outlined here, it can feel more difficult to maintain as it might take some time to chip away at the more expensive debts.

That being said, once you’ve tackled the debts that are costing you the most money, you can usually gain real momentum when it comes to paying off the rest, if you can stick at it.

Finally…

Dealing with your debts can feel overwhelming, but if you’re struggling it’s a good idea to seek professional advice as soon as possible.

There are plenty of free sources of advice available and many charities and organisations that can help you. These include:

Whatever happens, don’t suffer in silence, as struggling with debts on your own can take a real toll on your mental health. If you are finding it hard to cope, our article Are money worries affecting your mental health? explains where to go for help if you need someone to talk to.

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