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How to avoid falling into debt & how to snowball your way out

How you can avoid debt and how the snowball principle can help you get debt under control.

You might think it can't happen to you. You might have a little safety net already prepared. But something unforeseen happens, and you're in it - the debt trap.

More of you are in it than you think. The COVID-19 pandemic has affected so many women. Throughout 2020, we had been interviewing for a few roles at SmartPurse, and most women's stories were the same: redundancy, on state benefits and barely scraping by.

So many jobs have disappeared, from sectors we didn't realise would be so affected. The travel industry is decimated, events companies have downsized, and small retail businesses have closed their doors for good.

Unfortunately, the pandemic wasn't the only factor for a lot of people now struggling with their debt. They were already in debt and/or living paycheck to paycheck. COVID-19 just exacerbated the problem. 

So many people are in debt, and they have little ability to manage it.

What does Swiss debt look like?

According to the BfS in 2017, over 40% of Swiss households ad at least one type of debt, and 8% had at least three different types of debt.

The most common debt in Switzerland is payment arrears. 18.9% of households have at least one payment arrear debt; followed closely by leased vehicle debt (14.6%), debt to family or friends (10.6%), and consumer debt (9%). 

How much average debt does the UK citizen have?

As of January 2020 the most common types of debt in the UK are personal loans, student loans, hire purchase and credit cards. Debt in the UK looks like this:

  • Average total debt per household = £60,363
  • Average credit card debt per household = £2,595
  • Total unsecured debt per adult = £4,264

What are the 9 main reasons someone goes into debt and struggles to get out?


Job loss

Income can often disappear quickly, but the costs of living remain the same, at least at the beginning. In July, the unemployment rate in Switzerland was 3.2%, and 3.9% in the UK. Forecasts predict a further increase in the long term. 



Costs rises are driven by rent and living expenses, especially for the one who moves out, and legal advice. At the same time, old debts continue to rack up, and it can take a while before you receive alimony payments.


Illness/stroke of fate:

In the event of accident, illness or death, Switzerland offers a range of insurance cover for loss of earnings, disability, and death. If you're insured in the UK, then you may receive all the funds needed.


Overdraft/credit card overdraft:

This is one of the most expensive types of debt - if at all possible, simply avoid it or immediately make a plan to pay it back; otherwise the mountain of debt will continue to grow exponentially.


Buying on loans/instalment credits/short loans:

High-interest costs and processing costs occur, and in the case of car leasing, higher risk protection is also required. It is best to calculate the total price in advance, how much the purchase really costs and how the loan makes it even more expensive.


Shopping spree/online purchases:

Especially with online purchases that are charged directly to the credit card, it is easy to lose track. In addition to budget and debit cards, it can also help to postpone the purchase, e.g. save it in the shopping basket and check in a few days to see if you really want and need it. In any case, check your credit card statement regularly.


Mobile phones:

Unfavourable tariffs, small expenses such as in-app purchases which are becoming more and more common, subscriptions which are no longer needed, data roaming at home and abroad, but also call charges. Especially for young people with lower incomes, the mobile phone can become a debt trap. Choose a subscription according to your needs, "clean" your mobile phone regularly from unused subscriptions, and automatically limit roaming abroad.


Rental costs:

Rental costs are high. If you suddenly find yourself living in a flat that you can no longer afford, you're locked into your rental contract. It helps to first calculate costs compared to income and plan for the worst-case scenario. As a rule of thumb, rent, including service charges, should not exceed one-third of your income. That's hard to achieve in big towns and cities!


Real estate financing:

It's not hard to over/underestimate interest, maintenance, additional payments, legal fees, or refurbishment costs. And then it all becomes confusing quickly. This is where sufficient private equity and a very conservative calculation of maintenance and interest is helpful. Make sure to have legal protection insurance for possible legal disputes.

Avoiding the debt trap

Of course, life happens - you can't avoid illness, job loss, or the breakdown of a relationship.

In theory 'don't spend more than you actually get' is a pretty simple mantra to live by. But in reality, it's not always possible. It's more realistic to plan for money changing life events, having a budget (and sticking to it), as well as a nest egg, can save you from the debt trap - or at least stave it off for enough time for you to discover a solution.

  • Budget: Over the past few months, our lives, and to some extent, our consumer behaviour, has changed — less general spending, but more online purchases. Maybe you have just as much, less or even more money available now because many daily activities have fallen away. If you don't have one, set up a budget. For everyone else, now is an excellent time to adjust your budget. Be sure to include the nest egg and, if necessary, debt repayment — Excel, e-banking, apps or various templates perfect for money planning.
  • Nest egg: The perfect nest egg contains 3-6 months of your after-tax salary. Starting now is highly recommended, no one knows how long these uncertain times will last. Start off small, putting a little away each month to pay your future self, it'll be worth it in the long run - raising money when you need it urgently is often tricky and expensive.

Use the snowball principle to get out of debt faster!

One of the fastest methods of paying back debts is the snowball principle. Here's how it works: You give the highest priority to accounts with smaller amounts instead of those with the highest interest rates.

  • List all debts, from the smallest to the largest;
  • Pay the minimum of the rates you have to pay, except the smallest debt;
  • Pay off the smallest debt as quickly as possible;
  • The next smallest debt at the top of the list, pay it off, repeat until everything is paid.


Why does it work? Harvard researchers have found that the motivation and behavioural change that comes from successfully paying off small debts is so significant that you reliably pay off all your debts much faster, like a snowball that gets bigger and bigger.

Here's a free tool to help you build your snowball.

Why does it work? Harvard researchers have found that the motivation and behavioural change that comes from successfully paying off small debts is so significant that you reliably pay off all your debts much faster, like a snowball that gets bigger and bigger.

Here's a free tool to help you build your snowball.

If the Snowball Method doesn't sound right for you, have you heard of the Avalanche Method? We compare the two in our Digital Money School, so that you have all the information you need to decide which method will work for you.

This article has been produced in partnership with watson, a Swiss news platform. 

Here is the link to the original blog article in German.


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