Snowball vs. Avalanche Methods in Paying off Debt

Whether you have a large amount of debt or a small amount, paying it off can be challenging. However, there are two main strategies people swear by, and that is the snowball method and the avalanche method. While both are useful strategies to get debt out of your life, it’s important to choose the method that will be easy for you to stick with.

Here’s the breakdown of each method:

Snowball Method

What is the Snowball Method?

The Snowball method means paying off the smallest balance first. The advantage here is that it feels better to check off each debt as done, and can be motivating to continue paying it off.

How to do it?

• Organize all of your loans ordered from the smallest balance to the highest balance.

• Figure out how much extra you can pay beyond the total of your minimums.

• After paying off all the minimum payments, put the remaining amount towards the loan with the smallest balance.

  For example, say you have 3 credit cards:

  • Credit Card 1: $5,000 with 25% interest

  • Credit Card 2: $10,000 with 26% interest

  • Credit Card 3: $1,000 with 18% interest

    With the Snowball method, you would prioritize them in this order:

  • Credit Card 3: $1,000 with 18% interest

  • Credit Card 1: $5,000 with 25% interest

  • Credit Card 2: $10,000 with 26% interest

Why do it?

The small but quick wins are excellent motivators to keep you going until you’ve worked through all debts.

Downside?

The main downside is that it may not be the cheapest way to pay off debt. You might be paying off the smallest debt aggressively, but have a larger debt with a higher interest rate.

Avalanche Method

What is the Avalanche Method?

The Avalanche method means paying off your debts in order from highest to lowest interest rate. The advantage here is you save more money compared to the debt snowball.

How to do it:

• Organize all of your loans ordered from the highest interest rates to lowest.

• Figure out how much extra you can pay beyond the total of your minimums.

• After paying off all the minimum payments, put the remaining amount towards the loan with the highest interest

  For example, say you have 3 credit cards:

  • Credit Card 1: $5,000 with 25% interest
  • Credit Card 2: $10,000 with 26% interest
  • Credit Card 3: $1,000 with 18% interest

  With the Avalanche method, you would prioritize them in this order:

  • Credit Card 2: $10,000 with 26% interest
  • Credit Card 1: $5,000 with 25% interest
  • Credit Card 3: $1,000 with 18% interest

Downside?

The main downside to this method is if you have several loans, it may feel overwhelming, and it may not be as satisfying as getting rid of loans entirely.

You can also use a combination of the two methods. At the end of the day, paying off debt requires consistently contributing to decreasing that amount!

Further reading:

• How to Build Up Your Savings Even If You Have Debt
• Hacking Your Way Out of Debt—What Your Bank Won’t Tell You
• Going From Negative to Positive Net Worth

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