“Snowballing your debts” is the name given to paying the minimum off all your debts except one, and overpaying that one by as much as possible each month.
This Guide to Snowballing provides information and tips so you can:
- decide if snowballing is your best approach;
- find out how to speed it up;
- know what to look out for and what to be careful about.
Contents
Why is it called “snowballing”?
Roll a snowball downhill and it picks up more snow and goes faster.
Think of the amount you overpay in the first month as your snowball – much of this is paying interest, but it clears a bit of capital.
The next month there will be a bitless interest to pay, so if you make the same payment as before your over-payment will be larger and you clear a larger amount of capital.
So your “snowball” gets bigger each month and your debt drops by more. Like a snowball, your debt clearance get faster and faster
You can’t snowball unless you can pay at least the minimums each month
If your debts are too big, snowballing isn’t going to work for you.
Even if you are making the monthly payments, you still have problems if your debts aren’t dropping. You may be using credit to make debt payments – that isn’t clearing debt, it’s just shuffling it around.
If your debts keep going up, this is unsustainable.
Be realistic about whether you could make some cutbacks or earn more money. If the answer is “not enough to make much of a difference”, then you may need a debt management plan to freeze interest. Or even insolvency for a fresh start.
Which debt should you target first?
Opinion is divided about this!
Financially best approach is to repay the highest interest debt, as this reduces the amount of interest you have to pay – this is sometimes called the Avalanche method.
But many people say snowballing works best in practice if you clear the smallest debt first – they call this the Snowball method in contrast to the Avalanch method.
These are both just variations on the overall snowballing idea which is that you pay the minimum to everything and targe one debt to clear first.
Here is a short BBC video where one woman described how paying off the smallest debt worked better psychologically for her – illustrated with different size cakes,
You don’t have to adopt one approach and stick to it – every time you clear a debt you can decide which you want to target next.
Also you may have personal reasons for wanting to get rid of a particular debt first. That could be a loan from a relative. Even though it’s interest- free, you will just feel so much happier when it is gone!
Tips for better snowballing
Many of the best ways to make that snowball get larger and roll faster involve improving your finances: save money, increase your income, pay less interest, smarter budgeting etc.
Debt consolidation?
Could consolidating your debts help? Possibly… but you may not be able to get the loan you want… and if you do it could be a disaster:
0% balance transfers
If you have a good credit record, then a 0% balance transfer deal could be even cheaper than a cheap bank loan.
It’s harder to get good balance transfer deals in 2021. There are still some good deals, but they are shorter with higher fees and often lower credit limits. So try to get one and then plan to pay off that debt before the offer ends.
If you get one, you must make sure you never miss a payment to it – otherwise the 0% deal is very likely to be cancelled and you are back paying high interest again. Worst of all, with that missed payment on your credit record you will find it much harder to get another 0% offer. So one small slip can cost you a lot.
Avoid Klarna and other Buy Now Pay Later offers
If you are trying to get out of debt as fast as possible, Klarna and similar ways to spread the cost over a few weeks may sound convenient. But they are a big trap.
It doesn’t feel like you are spending real money, so there is a temptation to buy more than the sensible you really wants. And if you have done it a few times it can be hard to track what you have to repay every week and every month.
It is going to be hard to make snowballing work if you are still making impulse buys. Read 5 ways to reduce the amount you spend online.
Other ways to speed up that snowball
Not buying things doesn’t have to feel like deprivation Look out for the eco positives – buy fewer clothes, eat more vegan food, save the planet and save money at the same time!
Do make sure your partner is on board.
How long will this take?
To see how long it will take to clear your debts use this Snowball Calculator.
It’s not exact as you are unlikely to make the same debt repayment every month, but it is a good start. When using it, tick the “Overpay” box for credit cards, catalogues and if you have any loans which are flexible – most loans aren’t.
The Calculator assumes that when a 0% offer ends, you will then pay the higher rate. But if you can transfer the debt again you may be able to repay the debt faster than the Calculator suggests.
How far to cut back? is a question many people find hard. It’s tricky to find the balance between clearing the debt as fast as possible and having a budget you can live on for a long while.
Try running the Snowball Calculator with a larger monthly payment and see how much quicker you will get out of debt if you cancel that gym membership and halve your takeaway expenditure!
Your credit rating will improve – and that can speed things up
One of the best things about Snowballing is that it will improve your credit rating as your debts start to decrease. This helps your credit score in two ways. First you get a consistent set of “paid on time” markers each month. And second, your “credit utilisation” on credit cards and catalogue accounts drops.
A good credit record makes it more likely you will be able to get a 0% balance transfer deal, which will speed up your debt repayment even more.
This is another way your snowballing can get faster.
Borrowing more and paying more interest gets someone into a debt spiral. But debt repayments every month gets you into a virtuous, upward spiral. So if things seem to be going a bit slowly at the start, remember, this really does get better.
If you have a bad month – just keep going!
Not many people will clear a pile of debt with no set backs along the way. I love the cartoon of “The universe’s plan for you” in Has your budgeting gone off track?
If every month seems to be a bad month, then probably your budget is too tight. But the odd problem, you just need to not let it get you down and carry on.
nazim nawaz says
Hi i am in a debt of around 40k including gurantor loans. I want to consolidate all these loans in one so i can start paying a larger amount to one company monthly, but the problem is my credit history is quite poor now and I wont be able to it. Any suggestions please?
Sara (Debt Camel) says
It is very hard to get a 40k consolidation loan if you have a great credit record, with a poor one it’s not going to happen. (Except a high interest secured loan if you have a house with a lot of equity – and that would be a very bad choice as you are putting your house at risk.)
A better plan is affordability complaints about the guarantor loans and other loans where the monthly repayments are high. And putting all your other debts into a debt management plan.
John says
Hi Sarah,
In Aug 2016 I applied for a £25000 loan with NatWest which was accepted. Two month later I applied for a £30000 loan with Tesco which was also accepted. Bearing in mind at the time I was earning £1800 a month had a mortgage with all the usual bills, a car to run, child maintenance payments and a credit card with a high amount outstanding do I have a case for Tesco lending irresponsibly?
Tesco have said they checked my credit file but the NatWest loan did not show and they have said even if it had of shown everything would have been affordable. My mortgage was £650 a month and the HSBC loan was £409 so those two payments alone were over £1000. With all the usual bills along with a credit card how can Tesco say paying then £400 a month also is affordable?
Looking for some advice in this as I’ve been in a debt management plan now pretty much since the loans were taken. I understand I’ve been irresponsible but should Tesco have lent to me if I already had a £25000 loan elsewhere?
I did use the Tesco loan to pay off the NatWest loan but how would Tesco have been sure I would have done this?
Sara (Debt Camel) says
I suggest you send Tesco a Subject Access Request (see https://www.tescobank.com/assets/sections/help/pdf/Data-Subject-Access-Request-Application-Form.pdf) asking for copies of all the information they hold about you. This should show whatever credit check and affordability check they did befoe giving you the loan.
Danielle says
Hi have debts of around 5k, overdraft, credit card, very and next accounts.
I’m currently paying back via a dmp is there anyway I can come out of the plan and start paying back to the creditors so I can clear them quicker? Many thanks
Sara (Debt Camel) says
How long has your DMP been running?
Has all interest been frozen and have the debts been sold to debt collectors?
Can you afford to pay more than the DMP payments or are you hping To make full and final settlements?
I Freeley says
HI, my friend who is 34 had late payments and other problems with credit cards etc. He settled each and every one of his debts, That was over 3 years ago, He has no credit cards now, pays everything on time, he applied for a mortgage but was told he score was low, He decided to hold up his move due to corona virus as he had to work at home. It has now been 6 months on, he is saving and paying everything on time. Will it that 6 months extra have improved his score. his credit score will be better. A
Sara (Debt Camel) says
The best to way to find out if his credit score has improved is to check it! I suggest he reads https://debtcamel.co.uk/improve-credit-score-mortgage/.
Elizabeth says
Hi I have a £17000 car loan over 3 years is there any way of going to the finance company and pay off a lump some to them each month as well well as paying the dd a month or have you got any better ideas many thanks Elizabeth
Sara (Debt Camel) says
is this your only debt? is it a high interest rate?
Stephen says
Hi
I’m after some advice please. I have 21k debt and this is all on catalogue and credit cards. All the cards are 0% interest cards and some obviously end before others do. I have 8 different 0% cards. I looked at the snowballing article and it seems a good idea and I just wanted to ask what you would recommend please
Debt 21k
Monthly payments total £1220
As all my debt is on 0% cards I’m not sure which debt to start with.
Do I start with the lowest debt being £220 or do I start with the highest debt being £6400 on a 0% credit card that ends in July 2022
Sara (Debt Camel) says
When does the first 0% end?
Do you have a Barclaycard – if you do, do you realise its minimum payment is going up in January?
Stephen says
First 0% ends Feb 2021 with a balance of only £450 left. I do have a Barclaycard yes and that is the card that has my largest debt on it of around about £6500
Sara (Debt Camel) says
ok so that’s a small one. What are the next couple ending after that?
Is your Barclaycard minimum payment going up in January – most people’s are. There was a sneaky announcement put out by email in November saying your T&Cs were changing, that has the info. What will that make your minimum payments?
How much do you expect to have spare most months to snowball with – the amount extra you can pay to the debt you want to tackle first?
Stephen says
My next couple of debts after that small one are £800 then my next one jumps to £1400 and I did get the email actually yes. Like you said it was quite sneaky how they worded it and I honestly didn’t know about the minimum payment going up until you mentioned it and I have read the article this morning. My Barclaycard card min payment this month was £145. So I calculated how much it would cost me to make the minimum payment on everything and it came to about £400 a month so that would leave me approximately £800 a month spare to snowball with in month one (Jan)
Should I start with the smallest debts first or should I go towards the cards that are due to end first with the 0% offers?
Sara (Debt Camel) says
I suggest that you prioritise not the largest or the smallest but instead pay off the ones where the 0% are ending first. But I would pay off the very small £220 first just so you don’t have to think about it ever again.
Most snowballing chat you will see is where people are paying interest on the debt, but none of that applies to you – and nor will it if you clear the debts first so they never become interest bearing.
And the next priority is to make this as simple as possible. If you just pay the minimums to all the others, that amount will drop a small bit each month. Instead I suggest you set up a standing order for all the later ones for the current minimum (or what it will be going up to for the Barclaycard one) rounded up (eg so £43 becomes £50). Then you have a simple, unchanging number number being paid out each month.
So the first month you clear the mini debt and most of the £880. The next month you clear the rest of the £800 one and a couple of hundred towards the 1400 one. The 1400 will be gone two months later and you start on the next debt with a 0% period to end.
£800 a month is great amount to snowball with. Even allowing for the odd emergency, all your card debt should be gone in two and a half year.
Stephen says
Thanks for your reply
I’ll start this January. I appreciate your help
Steve
James Poland says
Hi, so I have about 13k in debt with all or most in default. I have been offered settlement offers of 50% off on a few of them. I want to get it all cleared as soon as possible and hope for a mortgage in the next 3 or 4 years. Would i be best doing the snowball with these and pay them off fully? Or what is best to try start clearing debt and getting bad reports away.
Thanks
Sara (Debt Camel) says
how long ago are the default dates on your credit record?
James says
They are mostly late 2019 with 1 early 2020 and early 2019
Sara (Debt Camel) says
So the basics. All your defaulted debts and debts with payments arrangements need to have been repaid before a mortgage application to a high street lender. (it is not a good idea to go to a bad credit lender – people hope this may only be for a couple of years but you can end up stuck on a very expensive mortgage for a very long while.) The settlelents should be at least 12 months before the application.
Some mortgage lenders may prefer full repayments to partial repayments, but many don’t care. See https://debtcamel.co.uk/dmp-partial-settlement/. if you go through a mortgage broker, the broker can steer you to the less fussy lenders.
But on the timescales you want. it sounds as though you need to get partial settlements in order to get the debts cleared quickly enough? In that case you don’t have much option.
James says
Okay thank you. Yes i will hope to have them all paid off asap with maybe 500-800 a month. And would you say i should start with lowest and work my way up to the highest debt?
Thanks
Sara (Debt Camel) says
It doesn’t make any differenece – these are defaulted debts, no interest should be added, so this isn’t really “snowballing”. Whatever feels good to you.
Plamen says
Hello,
Thank you for your help for all people in need.
I have an overdraft 1500£,2 credit cards, one 200£ the other 450 £,one 1500£ with monthly payment 107 £ and the most horrible loan -950£ from Loans2go,and they want 3500£, to pay them back with monthly payment 195£.
I took half of those loans because been diagnosed with cataracts on both eyes and needed urgent private surgery in other country (here was in waiting list?Surgery was successful ,but I lost my job ,because for 6 months couldn’t do even 5,10 kg handballing ,so I paid 3 payments to loans2go and asked for deferral, they differed for 3 months 39 £ but now they started to sms me 3 times a day.I pay it 39 £ never stopped ,they ruin it my credit ,but I manage all other payment ,just with then is hard.Have a wife and small child ,my wife can’t work (she take care about child) and I am worried if these scammers can bring me to the court and send bailiffs ,we have no even TB all we have is cheap ,modest, just one van 2007 but I go to work with him.
I am desperate and don’t know what to do,please what is the best thing to do ,I have no funds to repay them .
Thank you so much!
Plamrn
Sara (Debt Camel) says
It is possible to make a complaint to loans2Go saying the loan was unaffordable – read https://debtcamel.co.uk/worst-loan-in-britain/. Loans2Go may offer you some money off the balance – but really it could be reduced to £950 less what you have already paid. If they make an offer that isnt that good, ask in the comments below that lons2Go page.
BUT the problem for you is you will still be left owing money to them. And your other debts add up to quite a lot too. I think you should talk to Business Debtline about your sitution, see https://www.businessdebtline.org/. Business Debtline is a specialist adviser that helps the self emplyed and people with very samll limited companies with their personal and business debts. You may have other debt options. Complaints to the ombudsman take a while to go through. And petrol, bills and food prices keep going up…
Teej says
Hi Sara
Quick query. I’ve been lucky enough to secure a new job and salary increase. Therefore, I’m planning to snowball my 4 credit cards with spare cash. They are all circa 90% utilisation and this is affecting my credit score too. For the first couple of months, should I spread payments to bring them all down from the 90% mark?
I’m wondering if whilst I’m snowballing over 24 months, if my credit rating allows me to shift one or two balances to a 0%, then this would save interest too. But I’m guessing that this would only open itself up if the cards were edged away from the 90% mark?
Thanks in advance.
Sara (Debt Camel) says
Are they all at much the same interest rate?