How I paid off debt using the Snowball Method

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When you're looking at combined credit card debt of £4,000, the world starts to spin a little. Or at least it did for me after graduating from university. I had been living on my own after graduation, and I was barely making ends meet with my 9-to-5.

After one year of using my credit cards for groceries, clothes and car repairs, and only affording the minimum payment, my debt felt like a runaway train.

I remember thinking, “How did I get here?" and “What should I focus on first?"

Luckily, I had just started a new job at a small financial company and I was put in charge of writing content. One of my first projects was to work closely with our financial guides to learn about our financial advice. It was then that I learned about the importance of an emergency fund, the Snowball Method, and how to use a budget. All of which helped me get out of debt!

So, where did I start? This may sound counter-intuitive, but I maintained the minimum payment on my credit cards and focused on diverting every extra pound to establishing an emergency savings fund. This was the critical first step to getting out of debt.

A quick note about emergency funds: make them a priority! A survey by the Money Advice Service has found that four in 10 adults in the UK do not have £500 or more in savings. Unfortunately, without a savings buffer to pay for car or home repairs, or unexpected bills, all of those expenses just rack up more debt.

That's why focusing on establishing a percentage of your salary in a dedicated emergency fund is critical to breaking out of the debt cycle.

Once I had money in my emergency savings, I decided to use the Snowball Method to organise my debts and pay them off, one by one. This strategy helped me gain momentum and stay focused on becoming debt-free.

Are you ready to tackle your debt? Read on to learn about the different repayment strategies and how to pick the right one for you. It will take some dedication, sacrifice and patience, but becoming debt-free is possible!

Debt repayment strategies:

According to the BBC, the average total debt for individuals over 16 years-old in the UK is £28,000. Most of which is made up of mortgages. The rest is for credit cards, overdrafts and loans to buy things like cars, bikes or kitchens. So, if you're reading this, you're far from alone. Now, let's look at common debt repayment strategies...

The Snowball Method

The Snowball Method centres on creating momentum and motivation. Want to try it?

Write out your debt balances from smallest to largest. You don't need to pay attention to interest rate with this method. Now, pay the minimum balance on every debt besides the smallest one.

For the smallest balance, try to put as much extra money as possible towards it. Once you pay off the smallest balance, roll up what you were paying on that one and put it into the next largest balance. And so on, and so on until you're all finished!

The Avalanche Method

The Avalanche Method looks at which debts are costing you the most money.

If you want to try this method, line up your debts from smallest interest rate to highest interest rate. Then pay the minimum payment on all debts besides the one with the highest interest. Throw as much money as you can at the highest interest debt and once you have that paid off, move to the next one.

Debt Consolidation

Debt consolidation takes a bunch of high-interest debt and rolls it into one new loan with one lower-interest payment. You have to go through an application process and work with a loan servicer to receive a consolidated loan.

How to pick the best strategy for you

There isn't a one-size-fits all strategy, and picking the right option depends on many factors. Here are some questions to ask yourself to help determine where to start:

  • How much debt do I have? Take a look at your total debt across credit cards, mortgage, car, student loans, etc. Take note of your biggest debt and consider the following question…

  • Which debt should I focus on first? When I was assessing how to pay off my debt, I had both student loan debt and credit card debt. I checked the rates I was paying on all of my debts and I chose to focus first on paying off all of my credit cards because those interest rates were the highest, and causing me the most stress. In general, most financial experts recommend paying off credit card debt first, then moving to student loans, car loans and mortgage.

  • What motivates me? One of the biggest reasons I chose the Snowball Method is because I needed to see my efforts make a difference right away. And most behavioral experts agree, the power of small wins is incredibly effective for keeping focus and dedication.

So, if you feel like you might be chipping away forever at your largest debt, it may make more sense for you to start with the Snowball Method and build the confidence and motivation to keep going.

  • What is my credit score? If you are considering debt consolidation, your credit score will impact the interest rate of your new loan. If you're not sure how your credit score will impact the rate you're offered, take a look at the 5 things lenders are looking for on your credit file.

  • What are my spending habits? Take an honest look at how you got into debt in the first place. Are there ways to make more income (side gigs, ask for a raise, etc.)? Try using a budget app that tracks your spending so that you can see where your money is going and unearth any habits. Can you cut back on pub visits or shopping and use that money for debt repayments?

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