The debt snowball and debt avalanche techniques are two ways of paying off your debt without utilising a formal debt solution. This is an alternative self-administered solution for residents of Scotland who are experiencing financial difficulties.
Alternative Debt Consolidation methods in Scotland
It’s always possible that a person can negotiate with creditors themselves and secure a short-term debt management plan, or voluntarily agree to pay off a debt over a longer-term. Sometimes without much of an impact against the individual, or in the case of more long-term arrangements, more commonly in the form of default notices being served as an indirect consequence. A default notice itself can have a negative impact on a persons credit history.
Trust Deed Scotland® offer debt solutions including Trust Deeds and the Debt Arrangement Scheme and free qualified advice on alternative Scottish debt solutions which may include the Minimal Asset Process route. The benefits of undertaking one of these solutions may include:
- Reducing payments to an affordable level
- Freezing interest and charges
- Stopping creditor harassment over non-payment
- Writing off unaffordable debt
- Becoming debt free in 48 months
The key to understanding what options are open to an individual and how they can clear their debts is to seek help from a qualified money advisor – this will then ensure that the individual receives transparent, balanced advice and that the pros and cons of each solution are fully explained.
If you have unsecured debt and you’re finding these debts unmanageable – you can find out more about government-created debt management solutions available to you. A Trust Deed is only possible when you have over £5,000 of unsecured debts but you could still consider the Debt Arrangement Scheme if you have debts under that level, or indeed Minimal Asset Process if your situation is severe enough to warrant this as a solution.
Depending on the individual’s credit rating, income and existing assets – There is the option of a debt consolidation loan which is often secured against a property, or it may be possible to secure a new credit card or lending source at a lower APR%. Using a secured loan against property may allow you to get a loan at a more competitive rate, particularly if you already have a bad/poor credit rating but your home is at risk should you not be able to afford repayment.
Ultimately, whatever way works best for you will help you to realise a dream of enjoying life after debt.
Debt Snowball vs. Debt Avalanche – What’s the difference?
If you’re determined on tackling your debts yourself, don’t need help with debts and have a large enough, disposable income that allows you to do so then you can investigate the two methods known as the debt snowball and debt avalanche systems.
Both debt repayment plans are useful and help you regain control of your finances again, however, they both require a serious commitment from you and an element of frugal living.
The truth is that the two methods are almost exactly alike in that they both ask you to pay minimum payments on all your debts except for one focus debt.
The only difference between the snowball and avalanche is the order that you will pay off your debts. Some personal finance writers argue that one is better than another – but it’s really a matter of personal preference. With either method, you’ll send the creditor every extra penny you can find until the focus debt is paid off. As long as your total debt is going down then either is good.
What is the Debt Snowball technique?
The debt snowball technique involves making minimum payments on all debt, then paying off the smallest debts first to get them out of the way before moving on to bigger ones.
The architect of this technique and coined phrase is the American personal finance guru Dave Ramsey. It is a debt reduction strategy that results in you paying off debts in order of smallest to largest. when the smallest debt is paid in full, the money you were paying to that debt rolls on to the next smallest debt you have.
When you use the debt snowball technique, you will gain the instant feel-good factor of clearing a debt and moving onto the next.
What is the Debt Avalanche technique?
The debt avalanche technique involves making minimum payments on all debt, then using any remaining money to pay off the debt with the highest interest rate. The debt avalanche technique can often result in lower payments over time.
The debt avalanche technique involves making minimum payments on all debt, then using any remaining money to pay off the debt with the highest interest rate. Using the debt avalanche to pay off debt will save you the most money in interest payments.
For example, if you have £2,000 extra to devote to debt repayment each month, then the debt avalanche technique will make your money go the furthest. Say for example that you have the following debts:
• £10,000 Royal Bank of Scotland credit card debt at 18.99%
• £9,000 Capital One credit card debt at 3.00%
• £15,000 Halifax loan debt at 4.50%
In this example, the debt avalanche technique would have you pay off your RBS credit card debt first, then allow you to pay off your remaining debt in 11 months, paying a total of £1,011.60 in interest. The debt snowball technique would have you tackle the Halifax loan first, becoming debt-free in 11 months, but you would have paid £1,514.97 in interest.
By switching the order of your debts, you can save hundreds of pounds in interest payments. For individuals with larger amounts of debt, the debt avalanche technique can also reduce the time it takes to pay off the debt by a few months.
Priority vs. Non-Priority Debts
Before you would commit to either debt repayment technique you would work out your income and then also take into account your priority and non-priority debts. This is vital as it is not advisable to ignore your priority debts such as council tax simply because it’s not interest-bearing.
Ignoring priority debts may seem like a way of getting your debts paid quicker but are more like to result in serious consequences for you and your family if you stop paying your mortgage or rent.
Persistent Debt Caution
When you read up more on the debt avalanche and debt snowball techniques, it’s easy to get carried away with the idea of a debt repayment plan that can be self-managed, and that’s ok to feel that way. However, as these are largely American concepts, one major aspect you must factor in as a resident of Scotland is the rules around persistent debt.
What’s persistent debt? You can find out more about persistent debt in Scotland but essentially, if you only make minimum payments for a period of 18 months on your credit cards, store cards and catalogues, your lender may suspend the service and ask for full repayment due to rules introduced by the Financial Authority Conduct. However, you will be notified of this in advance and you may still be able to negotiate a debt repayment plan with the lender.
Debt Repayment Plan Advice In Scotland
Trust Deed Scotland® offer a confidential, non-judgemental debt advisory service that aims to help people in Scotland get themselves out of the severest of financial difficulties.
A self-administered debt repayment plan such as the debt snowball or debt avalanche methods may be beyond your reach and a more formal debt management solution is required. In which case, we’ve helped over 20,000 people in Scotland who were in a similar position and of those people, almost 3,000 left a debt advice review on the independent reviews platform Trustpilot.
The difference between many of the companies advertised on Facebook or Google and Trust Deed Scotland® is that our advisors are based in-house and work directly with those who implement the solutions, ensuring continuity in your debt free journey and that your details are not passed onto anyone else. We’re also experts in Scottish debt advice whereas an individual based in a call centre in the rest of the UK, or overseas may know as much as about debt help in Scotland as the piece of paper in front of them, also known as their sales script!
And, as we have the correct FCA authorisation, and commitment to training and compliance – we’ll always have your best interests at heart. Some of those companies may attempt to sell you a solution that makes more sense for them, but it may not always be in your best interest.
Get started today by trying our Trust Deed Wizard® tool or call us on 01412210999.