Financial literacy · a life skill
Simple Debt Snowball Planning
smallest first, then roll it down
Four debts paid a little each month can feel like four debts forever. The snowball picks one: pay the minimum on everything, and put every spare pound on the smallest balance. When it's gone, its whole payment moves to the next one, so each debt goes faster than the last. It isn't always the cheapest order. It's the one that gives you something crossed off in the first few months.
- Easy
- Medium impact
- Learn it: 1 week
- One list, one target
A fictional set of debts, £8,720 in all, with £150 a month spare. The payment on the target grows as each debt clears: £175, £215, £293, £453. Interest paid: £1,138 with the snowball, £2,440 on the minimums alone.
The method
One target at a time.
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List every debt
Cards, overdrafts, loans, buy now pay later, money owed to family. The balance, the rate and the minimum payment for each.
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Sort smallest to largest
By balance, not by rate. The one at the top of the list is the target.
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Pay every minimum
On every debt, every month, on time. Missing one costs fees and hurts your credit file, and the plan only works if nothing new goes wrong.
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Put all the spare on the target
Whatever you can find each month goes on the smallest debt, on top of its minimum. Even £20 counts.
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Roll it down when it's gone
When the target is paid off, its whole payment moves to the next debt on the list. Don't spend it. The payment grows each time.
List, sort by balance, pay the minimums, pile the spare on the smallest, roll it down.
Example: Jo owes on a store card, a phone, a credit card and a car. Paying only minimums, the last of it would go in four and a half years. Jo finds £150 a month and points it at the store card, which is gone by month 3. The phone follows in month 7. By then £293 a month is going at the credit card, and Jo is debt-free in month 22.
The snowball planner
Put your debts in order and see the months.
1 · Your debts
No debts yet. Add the first one below, or show an example.
The rate and the minimum are on each statement. If a debt has no interest, put 0.
2 · The spare each month
Not sure what you can spare? Track a month of spending first, then come back.
3 · The plan
Add a debt to start
4 · The order
Your debts show here, smallest first, with the month each one goes.
Your debts are kept only in this browser. Nothing is sent anywhere. The months are an estimate: interest is added monthly at the yearly rate ÷ 12, and minimums are assumed to stay the same.
The research behind it
The pull to close an account is real. Point it somewhere useful.
Moty Amar, Dan Ariely and colleagues asked viewers of a business news programme to imagine two credit cards: $100 owed at 10%, and $1,000 owed at 15%. Then a rebate arrived to put towards debt. Every dollar of it belonged on the 15% card.
When the rebate was $100, just enough to clear the small card, viewers put an average of $32.41 on it. When it was $1,000, too big for the small card to swallow, they put $12.62 there. Given the $100, 29% paid the small card off completely; 2% split it evenly. The researchers call it debt account aversion: people want fewer accounts open, even when it costs them.
That pull can also help. David Gal and Blakeley McShane looked at the records of people in a debt settlement programme and found that those who closed more of their accounts early were more likely to go on and clear all of their debt. The snowball spends the pull on purpose. In the example above it costs about £128 more interest than paying the highest rate first, and in return the second debt is gone in month 7 instead of month 22.
The idea
Why it works.
Paying off debt is slow, and slow things get dropped. Spreading spare money across every balance shrinks all of them a little and finishes none. Pointing it at one balance finishes something within months, and a finished debt is proof the plan works.
The roll is what makes it fast. A cleared debt's payment doesn't go back into the month's spending; it joins the attack on the next one. The last debt gets the whole lot.
When it goes wrong
Habits that help.
- New debt creeps in. The snowball can't outrun a card that's still being used. Put the cards away while you pay them down.
- One rate is very high. If a big debt charges far more than the others, the planner shows what paying it first would save. Choose with the numbers in front of you.
- Spare money vanishes. Move the extra on payday, before the month gets to it. A standing order to the target does the remembering.
- A cleared payment drifts. When a debt goes, set up the bigger payment to the next one that week, while it still feels like a win.
Go deeper
Keep going.
- Simple Debt Snowball Planning
- Deliberate Debt Snowball Planning
- Advanced Debt Snowball Planning
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.
