Keep this life skill for later
Sign in to save
← All life skills

Financial literacy · a life skill

Advanced Debt Snowball Planning

choose the number yourself

The order you pay debts in matters less than how much goes in each month. The minimums are the lenders' floor, worked out to suit them, and most people's payments drift toward whatever number is printed on the statement. The advanced version of the skill is to price a few monthly totals, choose one from your own budget, and hold it until the last debt is gone.

  • Challenging
  • Life-Changing impact
  • Learn it: 30 days
  • One fixed amount a month
The first £100 over the minimums saves £825
Total interest against the amount paid each month, for four example debts At the minimums, £303 a month, the debts clear in 36 months with £2,152 interest. £403 clears them in 25 months with £1,327. £450 takes 22 months and £1,147. £600 takes 16 months, £800 takes 12 months, £1,000 takes 10 months. INTEREST PAID · AN EXAMPLE Same four debts, smallest first, at each monthly total. 16 months 12 months 10 months £450 a month 22 months · £1,147 the minimums, £303 36 months · £2,152 £0 £1,000 £2,000 £300 £500 £700 £900 Paid each month, all the debts together

Each dot is one fixed total, held until the last debt is gone, with each freed payment moved to the next debt. The curve is steepest just above the minimums: going from £303 to £403 saves 11 months, while the last £200 on the right saves 2.

The method

Floor, price, choose, hold.

  1. Add up the minimums

    That total is the floor the lenders set. It tells you the least you can pay without a penalty, not what you should pay.

  2. Price three totals

    Work out the months and the interest at the minimums, at £100 more, and at £200 more. Write the three side by side before you decide anything.

  3. Choose from your budget

    Take the largest total you can pay every month without borrowing again, and make it one fixed amount. Start from what you have, not from the statement.

  4. Hold the total as debts close

    When a debt is paid off, its payment moves to the next smallest. The total never drops, so each month the next debt gets more.

  5. Send lump sums to the smallest

    A refund, a bonus or a sale goes straight onto the smallest balance, on top of the usual total.

    Add the minimums, price three totals, choose one, hold it, add lumps.

Example: Sam's four minimums come to £303. Paid at that, with each freed payment moved on, the debts clear in 36 months for £2,152 in interest. Sam's budget can hold £450, which clears them in 22 months for £1,147. A £1,000 tax refund in month 6 brings it to 20 months and £917.

The payment planner

Price your own monthly total.

1 · Your debts

No debts yet. Add the first one below, or show an example.

2 · Your monthly total

Add a debt and its minimum sets the floor.

3 · A lump sum, if one is coming

Month 1 is this month. New to this? Start with the smallest-first basics.

4 · What your total buys

Add a debt to price it

Interest paid at each monthly total

Everything here is kept only in this browser. Nothing is sent anywhere. The months are an estimate: interest is added monthly at the yearly rate ÷ 12, minimums are assumed to stay the same, and the money above them goes to the smallest balance first.

The research behind it

The minimum on a statement pulls payments down toward it.

Neil Stewart, a psychologist at the University of Warwick, gave volunteers a made-up credit card statement and asked how much they would repay. Some statements showed a minimum payment and some didn't. Among the people who didn't clear the whole balance, the average repayment was £175 with no minimum shown and £99 with one. The share who paid in full was the same either way.

Stewart's point was that the minimum works as an anchor: a number seen first that every other number gets judged against. It's there to stop a balance growing, and it ends up setting the payment for people who could afford more.

Benjamin Keys and Jialan Wang found the same pull in real accounts, covering about a quarter of the US credit card market. 29% of accounts regularly paid at or near the minimum. When the minimum formula changed, at least 22% of those near-minimum payers moved their payments with it, in the way anchoring predicts.

Stewart suggested showing people what different repayments cost over time. That's what the curve and the planner on this page do, and it's why the planner asks for your total before it shows you the minimums' result.

Average repayment among people not paying in full: £175 with no minimum shown, £99 with a minimum shown. AVERAGE REPAYMENT · NOT PAYING IN FULL A made-up statement, with and without a minimum. No minimum shown £175 Minimum shown £99
Stewart (2009), as reported by the University of Warwick. People who paid the whole balance are left out; 55% did in both versions.
29 of every 100 US credit card accounts regularly pay at or near the minimum. 29 OF EVERY 100 ACCOUNTS Regularly pay at or near the minimum. US cards.
Keys and Wang (2019). One dot is one account in a hundred; filled dots pay at or near the minimum.

The idea

Why it works.

A minimum is the least a lender will take this month, usually worked out from the balance. Seen first, it becomes the reference point, and £100 above it starts to feel like a lot. Starting from your budget and a priced curve moves the reference point to a number you chose.

One fixed total also runs the snowball without any decisions. As each debt closes, its money already belongs to the next one, so the plan speeds up on its own while the amount leaving your account stays the same.

When it goes wrong

Habits that help.

  • The minimum keeps falling. On many cards it's worked out from the balance, so it shrinks as you pay. Keep paying your number, not the new lower figure.
  • Your number is too high to keep. A total you hold every month beats a bigger one you drop in month three. Lower it until it feels dull, then raise it when your pay goes up.
  • The statement arrives first. Set a standing payment for your amount on payday, so the printed minimum never gets read as a suggestion.
  • A windfall arrives. Decide the share in advance, say half, and move it to the smallest balance the day it lands.

Go deeper

Keep going.

Resources

Practise this in HourLife.

In Finances: Debt payoff order. Log your money once a month, set a monthly budget and track spending by category, and keep every subscription and its charges in one list.

Download on the App Store Download on the Mac App Store How Finances works in HourLife