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How to snowball debts – the cheapest way to pay each off

Jasmine Birtles 11th Jan 2020 No Comments

Reading Time: 4 minutes

Did you know that one of the quickest and most cost effective ways to get your debt paid off is to do something called ‘snowballing’ your debts.

Debt can be overwhelming and it can be really stressful dealing with it.

  1. What Are Snowball Debts
  2. Snowball Debts Step By Step
  3. How Do Other People Snowball Debts?
  4. More Examples of Snowballing Debts
  5. Sign Up for our free debt emails


How to snowball debts

Snowballing debts may not appear to be that effective when reading about it, but once put into practice the benefits become clear.

It’s a great tactic if you can do it effectively. And by reading our tips, you’ll be in a good position to start the process.

Snowballing debts is a simple concept. Essentially, you pay off your debts by starting with the most expensive, not the one you owe the most too, but the one with the highest APR (Annual Percentage Rate).

Once you’ve paid that one off, you then move down the list doing the same to the next most expensive loan, Then the next, and so on, until you’re completely debt-free.

Each time you clear a debt, the more money you gather to pay off the next one in line. Just like a rolling snowball of fresh income.


Snowball debts step by step

If you’re new to snowballing, it might seem complicated to start with. Here’s a simple step by step guide to get you started.

How to snowball debts - the cheapest way to pay them offStep 1

Move as many of your expensive credit and store card debts as possible to 0% credit cards.

These are cards which cost nothing for a few months, i.e. they don’t charge you any interest. You can get one here.

Step 2

If you can’t get actual 0% cards, look for low balance transfer cards instead. This will at least get your debts down as cheap as possible. You can get those here too.

Step 3

It’s also possible to consolidate at least some of your debts into one cheaper loan. If you do this, make sure it’s an unsecured loan rather than a secured loan.

The ‘secured’ loans tend to be secured on your home (like a mortgage). Whereas an unsecured loan is usually referred to as a ‘personal loan’. This is what you want to look out for.

Check the comparison here to see if you can get an unsecured loan that’s cheaper than your other debts.

Step 4

If you can’t switch your debts to a cheaper rate, instead make a list of the most expensive ones (in terms of APR) from the highest cost to the cheapest.

Step 5

Pay as much as you can of the top one each month. Meanwhile, only pay the minimum amount on all the others.

So, you pay the bare minimum that you are legally required to with your loans and credit cards except for the most expensive one. Essentially prioritise the most expensive.

Step 6

Once the top loan has been paid off, do the same thing again to the next most expensive debt. Remember to always pay the minimum on the others though.

You can see the pattern here of course.

Repeat this until you’ve paid off all your debts.

If all goes to plan, once you have paid off the first most expensive one first then you can move onto the next. As each debt is smaller than the last, they should get quicker to pay off each time too. Hopefully, you’ll also get used to making the payments, so might be able to increase the amount you can pay back each month too.

By the time you reach the fourth on your list you should ideally be able to see the light at the end of the debt tunnel.


How do other people snowball debts?

A lot of people have paid off their outstanding debts by snowballing them. It takes time but it’s a sensible and organised way to do it. Once you get the idea it’s also pretty straightforward and easy to keep track.


examples of  snowball lists

Example 1

Kate has £15,600 of debt across two credit cards, a loan and a store card.

Debt Amount owed Interest rate Minimum payment
Store card £600 29% £180
Credit card 1
£1,000 22% £50
Credit card 2 £8,000 17%
Loan £6,000 12% £300

Right now, Kate spends £1,000 a month trying to pay off her debts. Sticking with the status quo will cost her £1,831 in interest until they are all fully paid off.

To snowball, she should pay the minimum (£500) on the credit cards and loan and pay the remaining £500 each month on the store card.

At that rate, the horribly expensive store card will be paid off in two months. Then it’s gone – hopefully forever!

Once it’s paid off, she can do the same with the credit cards 1 and 2. Then finally the loan. That way she will have them all paid off within 18 months with only £1,593 of interest, saving herself £238.


And another example…

Dale has £40,000 of debt spread across a loan and a bank overdraft.

Debt Amount owed Interest rate Minimum payment
Overdraft £15,000 13% 0
£25,000 7% £750

Dale has been concentrating all his efforts on clearing the loan, paying £1,500 off a month. But that approach will cost him £5,507 in interest.

If he got rid of the more expensive overdraft first, he would get the rest cleared in 30 months and pay a total of £4,268, saving £1,239 in interest. That’s a considerable amount of money saved.

Further Reading:

Are you struggling with debt and need some support?

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Tell us how much you’ve paid off so far in the comments below to give others encouragement!

*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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