How to Tackle Your Debt: The Debt Snowball vs. the Debt Avalanche


When you’ve racked up debt across multiple loans, being debt-free seems like a distant dream. But it’s possible! The first step is to create a repayment plan that will work for you. There are many ways to get out of debt, but the two most popular methods are the debt snowball and the debt avalanche. Both plans involve aggressively paying down one balance while making the minimum payments on the rest. The difference lies in what order you tackle the debts. Let’s dig into the differences to see what plan would work best for you.

The Debt Snowball

With the debt snowball, you pay off your debt from the smallest to the largest balance. Financial radio show host Dave Ramsey has advocated this method for years. Let’s say you have the following debts:

  • Credit Card 1: $500 at 3.9% ($25 minimum payment)
  • Credit Card 2: $1,000 at 8% ($50 minimum payment)
  • Credit Card 3: $3,000 at 21.99% ($100 minimum payment)
  • Credit Card 4: $12,000 at 18.9% ($200 minimum payment)

Let’s say you cut your expenses and freed up $300 each month in your budget. By allocating this money entirely towards the lowest balance, you pay off your first loan in less than two months! Then, put the minimum payment from that debt once it’s eliminated ($25) and the money you freed up in your budget ($300) together. Your debt snowball is now $25 larger. You can now put $325 per month towards that second debt  (in addition to the $50 minimum payment you’re already making) for a total of $375 until it too is eliminated in just over a few months. And so the debt snowball grows until all the debt is paid.

The Benefits of the Debt Snowball

With the debt snowball, the focus is on motivating good habits. By concentrating on the smallest balances, you get a small win right at the beginning of the journey. It’s wonderful to pay off a credit card and know you no longer have that monthly payment. That quick succession of small wins helps you to stay the course and dump all your debt.

The Shortcomings of Debt Snowball

Since the debt snowball focuses on balances instead of interest rates, it’s entirely possible you won’t tackle the largest interest rate card right away. This means you will pay more in interest with the debt snowball than with the debt avalanche. It also means it might take a few more months to get out of debt. If you can’t stand the thought of paying extra interest, the debt avalanche might work better for you.

The Debt Avalanche

With the debt avalanche, you pay the debts down from highest interest rate to lowest interest rate. Compare this to the debt snowball method above. Here’s what that list of debts looks like, in the order you’ll pay them off, if you’re using the debt avalanche method:

  • Credit Card 1: $3,000 at 21.99% ($100 payment)
  • Credit Card 2: $12,000 at 18.9% ($200 payment)
  • Credit Card 3: $1,000 at 8% ($50 payment)
  • Credit Card 4: $500 at 3.9% ($25 payment)

If you apply the same extra $300 to your debts every month, you’d send it to the $3,000 loan with the 21.99% interest rate first. Since the balance is larger, it takes eight months instead of two to pay off the first card completely. But over time, you’ll pay less towards your debt because you eliminate the most costly interest rates immediately. The math often makes much more sense with the debt avalanche, but it does take more discipline because it takes longer to see big results.

The Benefits of the Debt Avalanche

Again, with the debt avalanche method you pay less in interest. If you have a large debt with a high interest rate, this strategy can save a substantial sum in interest. Also, if you have two loans that are just about the same balance, you might as well tackle the higher interest rate first to save some money.

The Shortcomings of the Debt Avalanche

With the debt avalanche, it often takes a bit longer to pay off the first debt. In the example above, it takes six additional months to eliminate a payment. And the second credit card takes a total of 24 months including the six months of minimum payments before you get the extra amount rolled in from paying off card one. If the long slog is discouraging, the debt snowball might help you stay motivated to complete the journey.

Tackle Your Debt

Consider your own personality and your own debt situation to determine the best method for tackling your debt. Even though the debt avalanche is less expensive, it’s more important to take consistent action over time so you can reach debt freedom. Remember, you can always use a bit of both methods.  If you are motivated after tackling the smallest balance, you can switch to paying the higher interest rate card. Then switch back to the lowest balance if you find yourself losing motivation. Regardless of the debt repayment method you choose, there are other strategies for paying down the balance. Consider making biweekly payments instead of monthly payments. You’ll add in two extra payments this way. You can also look into a balance transfer. You might be eligible for a lower interest card if you’ve been paying down your debt consistently. Just make sure you don’t add any more to the new card! Debt freedom is possible. Begin by committing to a repayment plan today and use one of these payoff methods to help you.

Mary Beth Storjohann, CFP® is an author, speaker, and financial coach who takes a fun, no-nonsense approach in working with individuals and couples across the country, helping them make smart choices with their money.

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