How the snowball method could help you pay off debts
DEBTS only get bigger unless you start trying to settle them, but when your debt mountain looks too big to tackle it can feel overwhelming to even get started.
Traditional financial advice has been to tackle the largest, highest interest debt first, helping to reducing interest payments - but the "snowball method" has the opposite approach.
It suggests starting with the smallest debts can be most effective for people who struggle to make a debt payment plan and stick to it.
Fans of the "snowball method" believe that paying off smaller balances can keep people motivated and on track as you get the regular satisfaction of knowing you have paid off a debt or closed an account.
Also, if you are being bombarded with debt letters and repayment calls, clearing some of the smallest balances can reduce the noise and stress of being in debt, even if the largest debt remains.
It can also to – some extent – help boost your credit score, says James Jones, head of consumer affairs at Experian.
He said: “If you can reduce your borrowing then this is good news for your credit score, regardless of which accounts you pay off first.
“This is because an important score factor is your total unsecured debt, so whichever route you take to becoming debt free is likely to ultimately lead to a similar score outcome.”
Snow warning - pay priority debts first
However, "Snowballers" are warned to still double check which debts are most likely to lead to court action or losing your home if you don't pay them.
Rent arrears, council tax and energy debt are all examples of priority debts that you should deal with first as the consequences of not paying these can be more severe says Jane Tully of National Debtline and Business Debtline.
She said: “Paying off a small debt first may provide some feeling of satisfaction and encourage someone to take the next steps to deal with their situation, but it is important to prioritise certain debts.
“Whilst it may be tempting to deal with debts for those creditors who shout loudest, this may not be the best approach and seeking free advice is crucial.
She encourages anyone worried about their finances to seek free debt advice from a charity run as soon as possible.
How to get help for free
THERE are lots of groups who can help you with your problem debts.
- Citizens Advice - 0808 800 9060
- StepChange - 0800 138 1111
- National Debtline - 0808 808 4000
- Debt Advice Foundation - 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Arrangements (IVA) on the and on the Government's
Speak to one of these organisations - don't be tempted to use a claims managment firm that will say it can write-off lots of your debts in return for a large up-front fee.
Also, if you have heavy credit card debt, your credit score can be affected by something called “credit utilisation” – this is where you don’t have much credit spare.
James Jones of Experian says: “If you choose the so-called snowball method, and improving your credit score in the short to medium term is an important factor for you, then reducing the balances on any credit cards you have will help improve a measure we call ‘credit utilisation’.
“This is the percentage of your available credit in use, and the lower the better for credit scores.
“Critically, always remember to pay at least the minimum expected monthly payment on all of your open accounts, to avoid any damaging missed payments (which badly affect your credit score.)”
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