Should You Use the Debt Avalanche or Debt Snowball in the UK?

When someone in the UK has multiple debts — credit cards, personal loans, overdrafts — they face a practical question: in what order should those debts be repaid? Two widely discussed approaches are the debt avalanche method and the debt snowball method. Both are informal repayment strategies rather than regulated financial processes, and neither is endorsed or prescribed by any UK regulator.

This guide explains how each method works, how UK consumer credit law interacts with voluntary debt repayment, and what anyone considering either approach needs to understand about priority debts, early settlement rights, and the regulatory protections that apply.

It is important to note at the outset that the UK debt advice framework draws a clear distinction between priority debts — where non-payment can lead to the most serious consequences — and non-priority debts. The FCA expects firms to consider whether customers can meet priority debts and essential living expenses when agreeing repayment arrangements, and this distinction is central to how the system actually works.

The debt avalanche method orders debts from highest interest rate to lowest. The debt snowball method orders debts from smallest balance to largest. In both cases, the person makes minimum payments on all debts and directs any additional available funds toward whichever debt is at the top of their chosen list. Once that debt is cleared, the freed-up funds roll into the next debt.

Neither method is a formal UK financial product or a regulated process. Both are strategies that individuals may choose to follow when repaying non-priority consumer debts.

Before applying either method, UK consumers need to understand the concept of priority debts. Priority debts — a term used widely in UK debt advice — are obligations where non-payment could result in loss of liberty, home, essential services, or essential goods. These include mortgage or rent arrears, council tax, utility bills, court fines, and child maintenance. Under FCA guidance, repayment arrangements with creditors are unlikely to be considered sustainable if they prevent a customer from meeting priority debts and essential living expenses. Both repayment strategies discussed in this guide apply to non-priority debts.

The Debt Avalanche Method

The debt avalanche method is a debt repayment strategy where debts are prioritised by interest rate, from highest to lowest. The person makes minimum payments on all debts and directs any additional available funds toward the debt carrying the highest interest rate. Once that debt is fully cleared, the funds previously directed toward it are redirected to the debt with the next highest interest rate, and so on until all debts are repaid.

This is a mathematical approach. Its logic rests on the principle that paying off higher-interest debt first reduces the total amount of interest that accrues over the repayment period.

The Debt Snowball Method

The debt snowball method is a debt repayment strategy where debts are prioritised by balance size, from smallest to largest. The person makes minimum payments on all debts and directs any additional available funds toward the debt with the smallest outstanding balance. Once that smallest debt is cleared, the funds roll into the next smallest balance.

This is a behavioural approach. Its logic rests on the idea that clearing individual debts quickly creates a sense of progress, which may help sustain motivation over time.

How Both Methods Interact with UK Law

Neither method exists in isolation from the UK's consumer credit framework. Several pieces of legislation and regulation govern what happens when someone repays debts early, how lenders must treat people in financial difficulty, and which debts carry the most serious consequences for non-payment.

The Consumer Credit Act 1974 is the primary legislation governing most unsecured consumer credit in the UK. Section 94 gives borrowers the statutory right to discharge their indebtedness early under a regulated credit agreement. The mechanics of partial early settlement are dealt with through related provisions and may vary by agreement type. Together, these rights underpin the practical ability to direct extra payments toward specific debts under either method.

When early repayment occurs, Section 95 of the same Act requires lenders to provide a rebate of charges, reflecting the shorter borrowing period. The rebate is calculated using an actuarial formula set out in the Consumer Credit (Early Settlement) Regulations 2004 (SI 2004/1483).

It is also worth understanding that the FCA's Consumer Credit sourcebook (CONC), particularly Chapter 7, sets out rules for how firms must treat customers in default or arrears. CONC 7 requires firms to treat customers with forbearance and due consideration. Specifically, CONC 7.3.5B (effective 4 November 2024) requires firms to take all reasonable steps to ensure that any repayment arrangements are sustainable — meaning the customer can still meet priority debts and essential living expenses.

Priority Debts and Essential Living Expenses

"Priority debts" is a term used extensively in UK debt advice to describe obligations where non-payment could result in loss of liberty, home, essential services, or essential goods. Examples include mortgage or rent payments, council tax, utility bills, court fines, and child maintenance. The FCA references priority debts and essential living expenses in CONC — for instance, supporting guidance at CONC 7.3.5C lists mortgages, rent, council tax, food, and utility bills. Under FCA rules, firms must consider whether a repayment arrangement allows the customer to continue meeting priority debts and essential living expenses; an arrangement that prevents this is unlikely to be considered sustainable.

The classification of what constitutes a priority debt can vary by individual circumstances. For example, a mobile phone may be considered a priority if there is no landline and the individual has health difficulties that require reliable communication.

Early Settlement Rights for Consumer Credit

Section 94 of the Consumer Credit Act 1974 provides borrowers with the statutory right to discharge their indebtedness early under a regulated credit agreement. Related provisions deal with the mechanics of partial early settlement, which may vary depending on the type of agreement. These rights apply to most unsecured consumer credit, including personal loans and credit agreements. They do not apply to agreements secured on land — mortgages follow separate rules under the FCA's Mortgages and Home Finance Conduct of Business sourcebook (MCOB).

Early Repayment Charges

Under Section 95A of the Consumer Credit Act 1974, creditors may claim compensation for costs arising from early settlement in certain circumstances — specifically during fixed-rate periods, where the compensation is fair and objectively justified. This compensation is subject to statutory maximum limits: 1% of the amount repaid early if more than one year of the fixed-rate period remains, or 0.5% if one year or less remains. The charge cannot exceed the total interest that would have been payable over the remaining term.

Section 95A also sets a trigger threshold: a creditor can only claim this compensation where a single early settlement exceeds £8,000, or where total early settlements in any 12-month period exceed £8,000. Compensation can only be claimed on the amounts exceeding that trigger point. This threshold does not apply to overdrafts or PPI policy repayments.

Settlement Figure Process

When a borrower decides to settle a debt early, they request a settlement figure from the creditor. The specific timelines for receiving a settlement statement, and the period during which that figure remains valid, depend on the type of agreement and the early settlement regulations that apply to it. For some agreement types, the Consumer Credit (Early Settlement) Regulations 2004 set out specific notice periods and validity windows — for example, distinguishing between agreements with original terms above and below 12 months. Because these rules vary by agreement type, borrowers may need to check the terms of their specific credit agreement or seek guidance.

Partial Early Settlement

The mechanics of partial early settlement — including notice requirements and timeframes — are dealt with through provisions related to Section 94 and the applicable early settlement regulations. These may vary depending on the type of agreement. In general, payments toward early settlement are first applied to any arrears and accrued interest before reducing the principal balance.

"One Method Is Always Better Than the Other"

No UK-specific empirical studies or regulatory research comparing the real-world outcomes of the avalanche and snowball methods for UK consumers were identified during the preparation of this guide. Claims about one method being definitively superior to the other are based on mathematical modelling or behavioural theory, not on verified UK consumer outcome data. Some sources argue the avalanche method always saves more in interest; others argue the snowball method leads to better adherence. Neither claim has been empirically verified for UK consumers.

"You Can Always Repay Any Debt Early Without Penalty"

While Section 94 of the Consumer Credit Act 1974 provides a statutory right to discharge indebtedness early under regulated consumer credit agreements, this does not mean repayment is always free of charge. Creditors may charge early repayment compensation during fixed-rate periods, subject to the statutory limits described above. Additionally, this right does not extend to mortgages, which are regulated under separate rules and where early repayment charges can be significantly higher — up to 5% of the loan balance during fixed-rate periods in some cases.

"Credit Cards Charge Early Repayment Fees"

Credit cards typically do not charge early repayment fees, and borrowers can generally repay the full balance at any time without penalty. However, this reflects market practice rather than a statutory prohibition. Individual card terms should always be checked.

"All Debts Are Equal"

The UK debt advice framework and FCA guidance distinguish clearly between priority and non-priority debts. Both the avalanche and snowball methods, as commonly described, apply to non-priority debts. Neither method addresses the principle — reflected in FCA guidance on sustainable repayment arrangements — that a person needs to be able to meet priority debts and essential living expenses alongside any repayment plan for non-priority debts.

"You Can Choose How Long It Will Take to Become Debt-Free"

Specific timeframes for clearing debt depend entirely on individual circumstances: the amounts owed, the interest rates on each debt, total income, and available repayment capacity. No UK-wide average figures exist for how long either method takes, because the answer is inherently individual.

Mortgages Are Not Covered by the Same Rules

The statutory right to partial early settlement under Section 94(3) of the Consumer Credit Act 1974 does not apply to agreements secured on land. Mortgages are regulated under MCOB, not CONC. Early repayment charges for mortgages can be significantly higher than those permitted for unsecured credit and operate under different rules entirely. Anyone considering accelerated mortgage repayment alongside other debts needs to be aware of this distinction.

Overdrafts Operate Differently

The £8,000 trigger threshold for early repayment compensation claims under Section 95A does not apply to overdrafts on current accounts. Overdrafts are generally repayable on demand and do not follow the same early settlement framework as term loans. Interest rates on overdrafts tend to be materially higher than those on personal loans — for example, the Bank of England's Money and Credit statistics (effective interest rate on interest-charging overdrafts) reported a rate of 22.50% for December 2024.

Scotland Has Different Rules on Statute-Barred Debts

The rules on when debts become unenforceable due to the passage of time differ between Scotland and the rest of the UK. In Scotland, the limitation period for most debts is 5 years under the Prescription and Limitation (Scotland) Act 1973, compared to 6 years in England and Wales under the Limitation Act 1980. This may vary depending on the specific type of debt, and individual circumstances should be considered.

The Sustainability Requirement

Since 4 November 2024, CONC 7.3.5B requires firms to take all reasonable steps to ensure that any repayment arrangements are sustainable. This means a customer must be able to meet priority debts and essential living expenses alongside any repayment plan. This rule applies to arrangements made with creditors — it is relevant context for anyone negotiating repayment terms while also pursuing a self-directed strategy like the avalanche or snowball method.

Both the debt avalanche and debt snowball methods are structured ways of deciding which non-priority debt to focus surplus repayment funds on. They are informal strategies, not financial products or regulated processes.

In practice, applying either method in the UK means navigating a framework that includes statutory early repayment rights (for most unsecured credit), potential early repayment charges (particularly on fixed-rate loans where the amount exceeds the £8,000 threshold), and the expectation — reflected in FCA guidance — that any repayment arrangements allow the person to continue meeting priority debts and essential living expenses.

The scale of consumer debt in the UK provides context for why these questions arise frequently. According to Bank of England data compiled by The Money Charity, total outstanding consumer credit in the UK stood at £221.3 billion as of January 2024, of which £69.6 billion was credit card debt — averaging £2,477 per household and £1,308 per adult.

Interest rates on common forms of consumer debt also illustrate why the order in which debts are repaid is a question people ask about. The Bank of England's Money and Credit statistics for December 2024 reported the following effective interest rates: 21.57% on interest-bearing credit cards, 22.50% on interest-charging overdrafts, and 8.85% on new personal loans to individuals. These rates fluctuate monthly and vary significantly by individual circumstances — for instance, personal loan rates ranged from 5.6% to 29.9% across one major lender depending on loan amount and credit profile.

The gap between these rates illustrates why the order in which debts are repaid is a question people ask about. What this guide does not do — and cannot do — is tell any individual which approach is right for their circumstances.

• Debt Avalanche vs Snowball: The debt avalanche method prioritises repayment by interest rate (highest first); the debt snowball method prioritises by balance size (smallest first). Both are informal strategies, not regulated UK financial processes.
• Legal Right to Early Repayment: UK law provides a statutory right to discharge indebtedness early on most regulated consumer credit under Section 94 of the Consumer Credit Act 1974, with lenders required to provide a rebate on charges under Section 95.
• Early Repayment Charges: Under Section 95A, early repayment compensation may apply during fixed-rate periods where it is fair and objectively justified, subject to statutory caps of 1% or 0.5% and a trigger threshold of £8,000.
• Sustainability & Priority Debts: FCA guidance on sustainable repayment arrangements expects that customers can continue meeting priority debts — such as mortgage or rent, council tax, utilities, and food — and essential living expenses alongside any repayment plan. Both methods discussed in this guide apply to non-priority debts.
• Exceptions: Mortgages, overdrafts, and credit cards each operate under different rules regarding early repayment, and the Scottish legal framework differs from that in England and Wales on certain matters including limitation periods for debts.
• No "Best" Method: No verified UK-specific evidence exists to demonstrate that one method produces better outcomes than the other for UK consumers in practice.