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Debt Avalanche vs. Debt Snowball: Which is Better For You?

There are two ways that you can actually start paying off your debt and get off on the right foot, the debt snowball and the debt avalanche. How do they work and which of them is better for you?
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

We earn a commission from our partner links on this page. It doesn't affect the integrity of our unbiased, independent editorial staff. Transparency is a core value for us, read our advertiser disclosure and how we make money.

Table Of Content

In this chart using data from Urban Institute, you can see that the age group 43 to 47 carries the highest average credit card debt. This age group has almost double the credit card debt of their under 32 year old counterparts or seniors aged 68+.

 

The Snowball Method: When It Make Sense?

If you’re looking to pay off your smallest debt before anything else, then you’re looking at the debt snowball. With this method, you make payments on that smallest debt until it’s eliminated, and then you take that payment and roll it into the payment you’re already making for the next smallest debt.

As you continue to pay off debts, you start paying more and more on the next one until everything is gone. The significant benefit to this method is that you feel like you’re getting somewhere faster because you have debts disappearing.

For many people, the fact that they feel like they’re moving forward and getting somewhere on their debt keeps them motivated to continue.

It might be a little more expensive because you’re not paying attention to credit card interest rates, but if it works, then it’s worth the extra cost.

ProsCons
Getting that first debt out of the way quickly makes you feel more accomplished and helps you to stick with the process.You’ll spend a little more time paying off your debts because you’ll have more interest tacked on as you go.
Getting rid of a small balance quickly means you have more money to add to the next debt.The interest rates on your debts probably don’t line up with the amount of money you spend on them, which means you’ll pay more interest.

The Snowball Method - Example

You’re going to make the minimum payment on all of those bills and then any extra money you may have you add to the minimum payment for the smallest bill. Then you work your way up the list, paying the extra on each debt.

Let’s look at an example of 4 different debts, including one that’s $500, one that’s $400, one that’s $200 and one that’s $100.

When you arrange them and start making payments under the debt snowball, you’re going to pay the smallest one before any of the rest.

  • $100 – $15 minimum payment
  • $200 – $20 minimum payment
  • $400 – $20 minimum payment
  • $500 – $30 minimum payment

This means you need to have $85 a month to make the minimum payments.

But let’s say you have $120. You would pay the minimum on the three highest debts (a total of $70), leaving you with $50. You would put that whole $50 to your first debt.

When you pay off that debt you take the $50 you were paying to the first debt and apply that (plus the $20 minimum) to the second debt. You would continue to do this until you paid off each debt.

$100
$200
$400
$500
Month 1
$50
$20
$20
$30
Month 2
$50 (paid off)
$20
$20
$30
Month 3
$70
$20
$30
Month 4
$70
$20
$30
Month 5
$20 (paid off)
$70
$30

The Avalanche Method: When It Make Sense?

With this method of debt payment, you’re actually paying based on the interest rate instead of the balance. You work at the debt with the highest interest rate and pay that one first, then work down the list.

This can be a benefit because when you pay on the debt that has a high-interest rate you’re going to end up paying less over time. Each month you’re going to pay more to the principal and less to the interest, much faster than the debt snowball.

One of the biggest problems and hardest parts of getting yourself out of debt is all that interest that continues to rack up over time. When you get rid of the high interest you’re going to make even bigger progress (even if it doesn’t feel like it). You’re going to actually cut down on the amount of interest you pay and you’re going to actually get out of debt faster this way.

ProsCons
You’re going to pay off your debt a whole lot faster because you’re paying less in the interest the entire way through.You may have a bit of trouble with motivation because you’re not going to see debts disappearing as quickly as you would with the snowball method.
You won’t spend as much money on interest.You’re going to have to dedicate yourself and really get into the internal motivation because you won’t see a change to your debt for a while.

The Avalanche Method - Example

Let’s look at that same debt again: $500, $400, $200, and $100. 

The first time around you put them in order of smallest to largest, but this time let’s take a look at them in order of highest to lowest interest.

  • $500 – 25% interest, $20 minimum payment
  • $200 – 20% interest, $10 minimum payment
  • $100 – 15% interest, $5 minimum payment
  • $400 – 10% interest, $20 minimum payment

If you have a little more to pay on your debts, say $170, you want to apply the money you have in this order. 

You’re going to start with the minimum payments for the last three debts, a total of $35. But then you’re going to take the $135 you have left and apply all of it to the debt with the highest interest rate. 

When you pay off debt one after 4 months, you’ll move down to the second one and add that $70 to the $10 minimum you’re already paying—keeping going until you get through all of the debt

$500 / 25%
$200 / %20
$100 / %15
$400 / %10
Month 1
$135
$10
$5
$20
Month 2
$135
$10
$5
$20
Month 3
$135
$10
$5
$20
Month 4
$95 (paid off)
$80
$50
$20
Month 5
$90 (paid off)
$35 (paid off)
$45

The Reason For Using the Debt Snowball Method

The debt snowball method lets you start paying off your smallest debts first. Even though they might not be the highest interest, you are still eliminating the debt you have quicker because you are attacking the small debts with large payments.

When you start to see some of your payments going down each month, the sense of achievement will encourage you to keep eliminating all your debts until you don’t have any left. Attacking small debts first also lets you have fewer payments you need to remember each month.

The Reason For Using the Debt Avalanche Method

The debt snowball method lets you start paying off your smallest debts first. Even though they might not be the highest interest, you are still eliminating the debt you have quicker because you are attacking the small debts with large payments.

When you start to see some of your payments going down each month, the sense of achievement will encourage you to keep eliminating all your debts until you don’t have any left. Attacking small debts first also lets you have fewer payments you need to remember each month.

Debt Avalanche Vs. Sniwball: Which Is Best For You?

The best method will be the one that works for you, so try to figure out what that’s going to be because both will get you debt-free.

For those dedicated to getting themselves out of debt, it’s going to be up to you to choose which method will fit your needs. Keep in mind that saving a little more money isn’t going to help if you can’t stick to it, so pick what will keep you going.

Does it motivate you to see your debt disappear by getting rid of bills, or do you want to save money? If you want to know more about how much you’ll save, you can check it out online.

A bunch of calculators will help you compare the two debt payment methods and see which will save you the most money and take you the least time. Using the avalanche method may save thousands of dollars and quite a bit of time in paying off the debt.

On the other hand, for those who don’t have a lot of debt or have trouble sticking to a plan that doesn’t have a lot of visible results, it might be best to go with the snowball.

Maybe you want to create your hybrid plan where you pay off certain types of debt, such as credit cards, car loans, and student loans. No matter which method you use, it’s going to be essential to stick with it to get your finances back on track.

The calculators you can find online will help you figure out what you will have for a timeline and the interest rate.

The Great Life of Being Debt-Free You?

If you’re in debt then you already know how important it can be to improve your finances, but it’s not always easy.

When you have a lot of debt, the payments on that debt consume a large portion of your income. Assume you have a $10,000 credit card debt with a 20 percent interest rate.

The yearly interest payments will eat up about $2,000 of your income. If you can find a way to pay off that debt sooner, you'll suddenly have more than $167 extra income available each month.

That's $2,000 per year that you could spend on whatever you want. You could treat yourself to that kitchen remodel you've always wanted, put more money into your favorite hobby, or take a luxurious vacation every year.

That's right, living debt-free makes it easier to save! While it may be difficult to become debt free overnight, simply lowering your interest rates on credit cards or auto loans can help you begin saving.

Those savings can be deposited directly into a savings account or used to accelerate debt repayment. More savings enables you to create an emergency fund, plan a fun trip, and even save for retirement.

One of the most dangerous aspects of being in debt is the risk it introduces into your life. If you're already in debt and don't have any emergency savings, you're always one financial blow away from disaster.

If you lose your job or suffer a major medical emergency, you may find yourself unable to make your debt payments.

Carrying a lot of debt hurts your credit rating. The closer your credit cards and loans are to being maxed out, the lower your credit score will be.

A low credit score can cost you thousands of dollars per year in higher interest rates, making it more difficult to get out of debt.

On the plus side, your credit score will improve as you pay down your debt. This, in turn, has the potential to provide a wide range of benefits.

Being in debt is a major source of stress. You are constantly concerned about how you will pay all of your bills and what will happen if you lose your job. The constant pressure of having to work to pay off debt while feeling guilty about spending on even minor pleasures wears you down.

According to the American Psychological Association's 2019 “Stress in America” survey, money is the second-largest source of significant stress in 60 percent of people's lives. Healthcare, at 69%, and the economy, at 46%, were the other financial stressors.

A majority of Americans have a plan to reduce their personal debts within specific timelines, based on a poll conducted by Northwestern Mutual

 

FAQs

At the beginning of your debt-free process, the debt snowball method is quicker. You will see that you have paid off smaller debts in as little as 12-24 months. Once you have paid off the smallest debts though and start getting into the bigger ones with high interest, you might find that your debt elimination stalls a bit.

Using the debt snowball method though will get rid of unwanted small debt much faster than the debt avalanche method.

Paying off your smallest debts first gives you a higher sense of achievement because you see the payments you have each month decreasing right away. However, the smallest debts might also have small interest, which means you aren’t incurring too many fees on them.

Paying off your debts with the highest interest doesn’t give you results right away. You might see your balances not going down any because you are only paying the interest back instead of the actual balance of the debt. However, paying off high-interest debt first means you have less money paid in fees in the future.

This depends on your life goals and how much extra money you have coming in every month. If you have a big purchase coming up or have an emergency, it might be better to start putting money into savings.

However, if you have large amounts of debt that are affecting your quality of life, you might want to prioritize paying those off as quickly as possible. If you can, try to pay off debt every month and then also put a little money into savings with whatever you have leftover

This depends on your APR and your interest rate. It also depends on if you are only paying the minimum payment or if you are making higher payments each month to try and pay the debt off quicker.

If you have $30,000 in debt with a 15% interest rate, you will have to make a minimum monthly payment of $900. This means it will take you about 23 years to pay it off. Your final bill will also be around $51, 222.13 rather than the original $30,000.

Lower interest rates don’t take as long to pay off, so always try to get credit cards or loans with the lowest interest rate possible.

Although paying off your last debt may feel liberating, it will not necessarily improve your credit score. Worse, it may actually lower your score, which may seem counterintuitive.

Paying off your credit card helps reduce credit utilization because your balance accounts for a small percentage of your total credit limit.
However, if you close the recently paid-off account, you will lose the account's credit limit, and your other balances will now account for a larger percentage of the total.

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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