What to do when the Debt Avalanche or Debt Snowball methods don’t work for you?

In all the finance blogs I have read, I have never seen anyone address what to do if neither the ‘Debt Snowball’ or ‘Debt Avalanche’ methods work, which was the case for me last year. I had been following the debt snowball method for a couple of years and was making good progress, I was in tune with my finances and knew what was going out and when, and I could, at the time afford all my minimum payments. But I knew my financial situation was going to change in September 2020 with a huge drop in income leaving me in a financial position where I wouldn’t be able to cover the monthly minimum payments on my debts. Six months leading up to this financial change (March 2020) I knew I had to do something completely different.

I listed all my debts, but this time in order of the highest minimum payment to the smallest. This is what my outstanding debt looked like at April 2020.

 Minimum Payment £Balance Outstanding @ April 2020 £
NatWest Loan3824,369.55
Barclaycard Credit Card320.8412,160.16
Tesco Credit Card1105,533.02
MBNA Credit Card1047,233.58

As you can see, although the NatWest Loan had the smallest balance, it was the highest monthly payment. And in total, I had £916.84 going out every month as a MINIMUM. Shocking really and looking back I will never know how I covered it. I always did though. I never missed a payment once, ever.

I did need a new plan so over the next six months from April 2020 to September 2020 I paid as much as I could off the loan and then the Barclaycard. The loan didn’t allow me to make overpayments, so I created a bare bones budget, meal planned every week and saved everything I could in an account until I had enough to pay if off in full. I was able to do this by May 2020 and paid the loan off in full. This then freed up the payment I was making on the loan of £382, thus reducing my total minimum payments on all debt to £534.84.

The next one to attack was Barclaycard and to reduce the minimum payment of £320.84. Again, with a bare bones budget, meals planned, money saved, and de-cluttered items sold, the minimum payment came down to £225.48 by September 2020. When I received my reduced income in September 2020, I only had to find £418.93 for my total debt minimum payments which was a lot more manageable than the original £916.84.

As I write this, March 2021, I am currently still paying off Barclaycard. The minimum monthly payment is £160.47, and the balance is £4113.14. My total debt payments are now £343.37 and I have now switched back to the Debt Snowball method where I am trying to attack Barclaycard with a vengeance!

 Minimum Payment £Balance Outstanding @ March 2021 £Interest Rate %
Barclaycard160.244113.1420
Tesco Credit Card104.005246.9420
MBNA Credit Card79.137798.110

Barclaycard is still the highest monthly payment, as well as one of the highest charging interest accounts and I have completed balance transfers where I can between the three accounts, and this is what I have left to pay. The credit card with the highest balance is at 0 % but that will change at the end of this year. However, I am confident to have Barclaycard paid off so I can tackle the other credit cards before interest is charged again.

I think the moral of my story is this, it’s important to try all the different methods out there if you think they will work for you but be open to doing your own thing if your circumstances change. It’s important to regularly review the methods you’re using and if you anticipate a change in your finances, make sure you leave enough time to adjust your way of working so you don’t come unstuck. Ultimately, if I had not done what I did then I would have been unable to pay the minimum payments and would have had missed payments and possibly CCJ’s on my credit file for several years.

Debt Snowball and Debt Avalanche Methods

What are they?

In the world of finance and paying off debt, you will find everyone raving about two different methods to tackle and repay their debt – ‘Debt Snowball’ or ‘Debt Avalanche’.

Debt Snowball

Using the debt Snowball method, you make a list of all your debts from smallest amount owing to largest (everything but the mortgage) and regardless of interest rate or repayment amount, you pay off the smallest first. You still carry on making minimum payments on all the other debts but focus all your efforts on the smallest and pay as much off that as you can. Once that one is cleared, you move to the next smallest and pay everything you can off that one and so on.

As you pay off more debts, the minimum payments made to the debt that has finished will be available to put towards the next smallest debt and this speeds up paying the debt back, effectively like a snowball it builds momentum.

Using the Debt Snowball method, you receive the success of paying off a debt quicker as it’s the smallest amount. The psychological impact creates ‘good’ feelings which ultimately spurs you on to the next debt and so on. This is a great method to use if you lack in motivation and like/need quicker results.

Debt Snowball Example:

 Interest Rate %Total Balance Outstanding £Minimum Repayment £
Credit Card 129.914,000397.00
Credit Card 220.911,000250
Credit Card 309,00080
Overdraft29.92,0000
Store Card X39.975080
Store Card B19.945025

As you can see, I have listed the different debts in order of total balance outstanding (in bold because both interest rate and repayment amount are irrelevant for this method). I would still make minimum repayments on all my debts but the smallest one I would make the minimum plus anything else I can throw at it!

Once the store card B has gone, I will have £25.00 extra (store card B’s minimum repayment) to put towards paying off the next smallest debt, in this example it would be store card X.

Debt Avalanche

Using the debt avalanche method, you would make a list of all your debts (everything but the mortgage) and make minimum payments on everything as before, but the debt that has the highest interest rate you would throw everything at as well as pay the minimum. This effectively saves you money by paying less interest over time, leaving the 0% and lower rates till last so you benefit from any 0% interest deals you have. This can save you money in the long run, but you will need to be a patient and self-motivated person as you won’t get as quicker hit like the debt snowball method and you could be waiting longer for success.

Debt Avalanche Example:

 Interest Rate %Balance Outstanding £Minimum Repayment £
Credit Card 129.914,000397.00
Credit Card 220.911,000250
Credit Card 309,00080
Overdraft29.92,0000
Store Card X39.975080
Store Card B19.945025

Using the previous example, I have highlighted in bold the interest rate box as this will now become the priority and store card X with an interest rate of 39.9 % will be the first one to tackle.

Review

Both the Debt Snowball and Debt Avalanche Methods have been proven to successfully help people to pay off debt and there isn’t a right or wrong method to go for, it will be whatever works for you. Maybe it’s best to try them both, but I’d recommend the Debt Snowball first. And if neither of them work, I found another option …

What to do if the Debt Snowball and Debt Avalanche Methods don’t work for you?