woman managing debt

How to use the snowball and avalanche money methods to get out of debt

An effective debt management approach requires you to tap into your money mindset. Here, Davinia Tomlinson, the founder of Rainchq, explains how to use two techniques that prioritise emotional and financial wellbeing.

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Being in debt is not only stressful but it’s often a source of embarrassment and shame for many women. This is largely down to the fact that it’s not discussed openly enough, which is strange, as most people are dealing with some kind of debt. In fact, the average total debt per UK household in June 2021 was £62,806, according to a report by The Money Charity.

Women, in particular, often feel uncomfortable talking about money, largely due to the impact of gender norms at work and at home. But since 2014, women have been more likely than men to go insolvent (meaning they are unable to pay off debt), and the insolvency gap is particularly pronounced among young women, who are a third more likely to go insolvent than their male counterparts.

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“Debt is often related to what we witness growing up. We inherit beliefs from the people around us that seep into our psychology during childhood and early adulthood,” says Davinia Tomlinson, the founder of Rainchq. “This means that there are people avoiding paying off residual debt even when they have the means to and others are letting it build up when they know they aren’t in a position to pay it back.”

Davinia explains that while practical debt management plans are necessary, they are ineffective without considering the psychological and emotive elements of debt. “You need to recognise the relationship between your emotional wellbeing and your financial wellbeing,” she says.

Davinia encourages two methods for paying off debt which tap into your money mindset: the snowball and avalanche methods. Before figuring out which method works for you, you need to consider what your relationship to money is and think about the reasons why you might have got into debt. “Know your behaviours and think about what keeps you up at night,” Davinia advises.

“Confronting our feelings about debt and putting a robust strategy in place is something we can celebrate for ourselves because we’re dealing with the issue head on and refusing to leave it to chance,” she adds.

Both the avalanche and snowball methods assume you have more than one source of debt. This might be multiple credit cards, overdrafts or loans.

Here, Davinia explains how the avalanche and snowball methods work and outlines which technique might be most successful for you, personally, based on your behaviour and concerns.

How the avalanche debt management method works

The avalanche method aims to deal with your biggest source of debt first. This is either the credit card or overdraft with the highest amount of debt or the one with the highest interest rate (or perhaps a combination of the two). The aim is to reduce the total amount of debt as quickly as possible.

To start, Davinia says that you should rank your debt in order of value and make a plan to pay it off, starting by paying off the biggest source of debt completely and then moving down your list from biggest to smallest.

“Psychologically, there’s a feel-good factor in knowing that your overall amount of debt will be reduced quicker because you’re starting with the most costly source of debt,” Davinia explains.

By considering interest rates, the avalanche method is also slightly more cost-effective then the snowball method, as it requires you to think strategically about how you can stop your debt from building up as a result of interest.

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How the snowball debt management method works

The snowball method works almost in an entirely opposite way to the avalanche method. The snowball method requires you to list your sources of debt from smallest to biggest, in terms of the amounts you need to pay off. You then start by paying off the smallest amount of debt first, moving towards the bigger sources of debt.

“This method will allow you to pay off each source of debt quicker and the psychological effect of knowing you had three credit cards to pay off and now you only have two, for example, is very rewarding,” Davinia explains. 

“The snowball technique works best for people who feel overwhelmed and bewildered by the admin of paying off debt, particularly if you feel stressed by being contacted by each lender separately,” Davinia says.

Using the snowball method may be slightly more costly than the avalanche method in the long-run. However, Davinia stresses that the psychological cost of you pursuing a different technique that doesn’t work for you might mean you end up giving up trying to pay off your debt. In which case, the snowball method is definitely worth it in the long-term.

How to put the avalanche and snowball debt management methods into place

Whatever method you choose, the first thing you need to do is make a plan of how much you want to pay off each month. Davinia recommends using a spreadsheet to do so but the most important thing is that you find a way to monitor your progress that works for you. 

“With both approaches, you still need to cover your minimum payments for all of your other sources of debts each month,” Davinia adds, even though your focus should either be on your biggest or smallest source of debt, depending on which technique you choose.

Davinia recommends adopting one strategy and sticking with it for between three to six months. After this point, you can reflect on your progress to see if the method has been successful for you, thinking about your mindset and emotional wellbeing in particular. If it hasn’t been effective, it might be worth trying the other technique out for the same period of time to see if this actually works better for you. 

“This is also a good time to reflect because your financial position might have changed - maybe you got a new job or a promotion. While the snowball method might have been your only choice before, the avalanche method may now be a viable option for you,” Davinia says.

Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.

  • Davinia Tomlinson, founder of Rainchq

    Davinia Tomilinson
    Davinia uses the avalanche and snowball techniques to connect the psychological and financial impacts of debt.

    Davinia is the award-winning founder of Rainchq, a business she set up to help women take control of their financial futures. She has over 15 years experience across the investment management and professional services industries including roles at Fidelity Investments and PwC.

    Davinia has a First Class Honours degree from Aston University, an Executive MBA from Cass Business School and holds the Investment Management Certificate (IMC). Outside of rainchq, Davinia is a board director for Talawa theatre company, established more than 30 years ago to improve diversity in the arts.

Images: Getty and Rainchq.