Reducing debt

Debt isn’t shameful — it’s a maths problem with a plan attached. The uncomfortable part is that interest compounds against you while you owe it. This guide gives you the two proven strategies for paying debt off faster, and the order in which to do it.

Step 1: See the whole picture

Write down every debt with three numbers:

• Balance — what you owe
• Interest rate — the APR
• Minimum payment — the smallest you must pay monthly

Include credit cards, personal loans, buy-now-pay-later, overdrafts and store cards. (A mortgage is usually treated separately — see understanding mortgages.) This list is your battle plan.

Step 2: Pay minimums everywhere

Missing a payment wrecks your credit record and adds fees. So step one is universal: pay the minimum on every debt, every month, on time.

Step 3: Pick your strategy

With the minimums covered, every extra pound goes to one target debt:

Avalanche (mathematically best). Target the highest-interest debt first. It costs the least overall and finishes fastest — and interest is the enemy, so killing it first is rational.

Snowball (psychologically best). Target the smallest balance first. Clearing debts feels great, which keeps you going. The interest cost is usually modestly higher; the completion rate is often much higher.

Which one? If you’re motivated by numbers, avalanche. If you need early wins to stay motivated, snowball. Both beat making minimum payments forever.

Step 4: Roll the payments

When a debt is cleared, roll its minimum payment onto the next target. Your monthly outlay stays the same, but an ever-growing lump attacks each next debt. This “snowballing” is what makes the plan accelerate.

Step 5: The order around debt

Sequence matters:

1. Small buffer (£500–£1,000) so emergencies don’t create more debt
2. Clear high-interest debt — credit cards and payday loans before anything else
3. Emergency fund — build it up once the toxic debt is gone
4. Invest — with debt cleared, the freed-up payments can fund savings and a pension

Clearing a 20%-plus credit card is a guaranteed “return” no investment can match — and it frees your income for good.

Borrowing better

If consolidation or a balance transfer genuinely cuts your rate, use it — but only if it lowers your total cost and you don’t rack up new balances on the old cards. The loan calculator shows the true cost of borrowing at different rates and terms, and the budget calculator finds the extra cash to throw at your plan.