How to reduce debt with 'snowball' or 'avalanche' method

There are more than eight billion people experiencing varying degrees of ‘problem debt’ in the UK, with one in six struggling to cope with what they owe.

Whether it’s credit debt, bills or the rising cost of living, it can be hard to know where to start when it comes to addressing money problems.

From budgeting apps to online money advice services, there are various ways to get your finances under control. Two popular approaches people can use to pay off debt include the “snowball” and “avalanche” methods, popularised by financial adviser Dave Ramsey. But what do they mean and how do they work?

What is the snowball method?

The snowball method is a debt reduction strategy in which you pay off debt in order of smallest to largest, excluding your mortgage. The aim is to gain momentum as you reduce and pay off each debt.

Once a debt is paid off, you take the funds you had allocated to your smallest debt and put it towards your next smallest balance. This creates a “snowball” effect which you can repeat until all your debt is repaid.

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The first step is to create a list of all your debts, excluding your mortgage. Organise the debts in order from smallest to largest. Create a budget to work out how much money you can put towards your debt.

Then each month, pay the minimum amount on each balance except the smallest one. Instead, put as much money as you can towards that one, without it impacting the rest of your payments.

After you have paid off the smallest balance, use the extra money you were using to pay it off to pay off your next-smallest debt. Repeat this process, paying off your smallest debts until you reach your larger ones.

This method is often used to repay revolving credit, such as credit cards. One of the key benefits is the psychological boost you can get from seeing your debts gradually reduce and vanish. Worrying about dealing with multiple balances can lead to added anxiety, but taking on one debt at a time can help.

There are disadvantages, however, including the potential to pay more money in interest over time. The snowball method means paying off your smallest balances first, which can leave your largest debt with the highest interest continuing to accumulate.

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What is the avalanche method?

Another way to pay off debt is the avalanche method. This involves paying off as much as possible towards your debt balance with the highest interest, while making minimum payments on your others.

First, create a budget to work out exactly how much money you can put towards paying off your debt. Then make a list of all your balances and list them in order of highest to lowest interest rates. Also make a note of the minimum payments on your balances.

Each month, pay the minimum you can on each of your debts, putting any money leftover towards the balance with the highest interest rate. Once this one is paid off, gradually move down the list until you have reduced and paid off all of your balances.

Unlike the snowball method, this is a good solution to tackling high-interest debt and it may help you to pay off your debts faster.

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Seek advice

It’s also important to seek professional advice when it comes to debt.

If you are feeling overwhelmed by your financial situation, the charity Stepchange, Debt Advice Foundation and the National Debtline all offer confidential help and advice.