Question 1

What is the debt avalanche method?

Accepted Answer

The debt avalanche method means paying the minimum on all debts, then directing any extra money to the debt with the highest interest rate first. Once cleared, roll that payment to the next highest-rate debt. It minimises the total interest you pay over time and is the mathematically optimal approach — typically saving hundreds or even thousands of pounds versus other strategies.

Question 2

What is the debt snowball method?

Accepted Answer

The debt snowball method involves paying off your smallest debt first regardless of interest rate, then rolling that payment to the next smallest. While it costs more in interest than the avalanche method, research shows the psychological wins from clearing debts help many people stay motivated and actually pay off more debt in practice.

Question 3

How much can I save by making overpayments?

Accepted Answer

Even small overpayments can save a significant amount. For example, paying an extra £100 per month on a £5,000 credit card debt at 22% APR could save over £1,000 in interest and cut the repayment time from years to months. Use the calculator above to see the exact impact of any additional payment on your specific debts.

Question 4

What is a debt-to-income ratio and what is considered healthy?

Accepted Answer

Your debt-to-income (DTI) ratio is your total monthly debt repayments divided by your gross monthly income. Lenders typically prefer a DTI below 36%, and a ratio above 43% makes it harder to obtain new credit. Reducing your DTI improves your financial resilience and increases your borrowing capacity for beneficial purposes like a mortgage.

Question 5

Should I pay off debt or invest first?

Accepted Answer

A useful rule of thumb: prioritise paying off high-interest debt (above 6–7% rate) before investing, as the guaranteed interest saving usually exceeds uncertain investment returns. For lower-rate debt like student loans or a mortgage, it can make sense to invest in parallel — especially if you have an employer pension match available, which offers an immediate guaranteed return.

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Frequently Asked Questions

What is the debt avalanche method?

What is the debt snowball method?

How much can I save by making overpayments?

What is a debt-to-income ratio and what is considered healthy?

Should I pay off debt or invest first?