Which Debt Payoff Method is Better? Debt Snowball Or Avalanche

the debt snowball versus the debt avalanche

Paying off debt is a very difficult task to achieve.  No matter which way you slice it, it will take time and patience to cut your debt down to $0.  Many people that have reduced their debt live by the two methods that are used most: Debt Snowball and Debt Avalanche.  There are other methods out there, but these are the most common and practical methods.  Not only are they widely recognized, but they also work.  Choosing a debt reduction method for you comes down to how your mind works and the type of debt you have.

For myself, I chose the Debt Avalanche method. After digging around and doing the math, I realized I would save a lot of money in interest by doing the avalanche, so that’s what I did. It wasn’t easy and I had to keep motivating myself to stay on course, but I did it. I paid off over $50,000 in credit card debt and $25,000 in other loans. So, it’s very possible to pay off your debt, but it will take some sacrifice and attention. I sacrificed going out to lunch and brown-bagged my lunch for years. I still don’t go out to lunch and the savings are awesome!

Let’s break down the two methods to show you how they work.

The Debt Snowball

The snowball is famously accredited to Dave Ramsey.  This famous financial guru has figured out the method that works toward a person’s emotions.  The reason this method works is due to how it keep you motivated during a long debt payoff. You’re looking for the emotional wins.

When starting the snowball method, you’re asked to write down your debts in order of balance ascending.  Basically, you start with your smallest balance debt. It doesn’t matter what debt you have. Some even include their mortgage in this process. It depends on your goals. Here is an example:

Credit Card 1: $350

Credit Card 2: $900

Credit Card 3: $2000

Credit Card 4: $5600

To start the snowball, you must work on paying off the smallest balance first, while still paying the minimum monthly payment on the other debts.  This is very important to remember. You HAVE to continue paying the minimum balance on all your debts. Don’t get late payments or stop paying. That’s not a good idea and it can damage your credit score.

Once you pay off the first debt, you move onto the next one, using the money you would spend paying the first debt to add on top of the second’s payment.  This action is what creates the snowball. Paying off a debt is a huge accomplishment and it helps build your confidence on being able to handle your debt reduction plan.  This plan is all psychological. The little emotional wins keep you going from debt to debt.

As you pay off more debts, you can add more money to your monthly payment.  The key to this plan as well as the avalanche is to pay more than the minimum payment on each debt you are working on at the time.  Here is a nice break down if you have an extra $50 per month to add to your payment.

Credit Card 1 Minimum: $20 | You add $50 and pay $70 per month until gone, then you roll $70 into the next credit card

Credit Card 2 Minimum: $35

Credit Card 3 Minimum: $100

Credit Card 4 Minimum: $180

You would add the extra $50 to your 1st credit card minimum to make a total of $70 per month.  Once that card is payed off, then you pay credit card 2 with the minimum payment, plus the payment from credit card 1.  You would end up paying $105 each month on credit card 2.  You would continue this until all your credit cards/debts are paid off.

The Debt Avalanche

The Avalanche method is more about math than emotions.  It does not deal with your psychological mindset, but pure math. If you’re a fan of math, then the Avalanche method could be for you. I will state that you will need to figure out how to create some celebration milestones. Unlike the Snowball where you can get the “quick” wins with smaller balances, the Avalanche can take you a little longer.

In my case, my higher interest rate debts were also some of my higher balances. This caused me to work harder and longer to pay them off, but it also saved me the most money with regards to interest payments. This is why I chose this method and it worked for me. It won’t work for everyone. You need to create milestones to work toward.

In order to start the debt avalanche approach, you would take your debts and list them by interest rate, descending (highest interest rate first).  Let’s use the example cards from above, but add their interest rates.

Credit Card 3: $2000  APR: 19.99%

Credit Card 1: $350  APR: 10.99%

Credit Card 4: $5600  APR: 8.99%

Credit Card 2: $900  APR: 5.99%

When you list your debts by interest rate, descending, you are effectively taking the shortest amount of time to pay off your debt.  You are also going to save the most money in interest.  When you take out the highest interest rate first, you are saving the difference in percentage rate from one debt to the next.  You have to pay off the debt in the same way as the snowball, by adding any extra you have toward the payment, and then using your first debt payment on the second debt.  You continue this until all your debt is paid off.  This method makes the most sense financially and mathematically, but it will not work if you don’t have the will power to continue the debt reduction plan.

You can see some fierce battles between those who think one method is better than the other. I could care less which one you use, as long as you use one! Remember, you’ll never pay off your debt if you just sit there comparing plans. You need to step it up and get started. The good thing about paying off debt is you can create any method that works for you. You can start with the Snowball and switch to the Avalanche. You can go either way. Heck, I even created my own debt payoff plan when I was doing it. This helped me pay off my debt and change my money mentality. It changed my life.

On top of paying down debt and saving, I also gamed the system a bit. Instead of just accepting my high interest rates, I worked hard reducing my rates by using balance transfer credit cards*. Since I had a good credit score, I would get 0% cards and transfer the higher interest rates to effectively drop them to zero. One of my favorite cards is the Chase Slate card. It has one of the best balance transfer promos. Learn more about the card and see if it works for you.

*You should only use balance transfer credit cards if you know you can pay off the entire balance during the promotional period. Most give you 12-18 months of 0% interest, but you have to pay off the entire balance during that time. If you can’t do this, NEVER try this process. It will get you deeper in debt. It only works for those who know how to do it and are disciplined.

In the end, it’s all about the money, but also your mentality. If you can stick through the tough times, then the Avalanche method could be your best bet. This all depends on your debt profile. Usually it makes more financial sense to attack your higher interest debts first, but look over all your debts and figure it out. I just want you to start right now. Literally, RIGHT NOW!

If you’d like to compare the two methods, here is a free calculator to do so. Good luck on your debt payoff!

Should you use the Snowball or Avalanche when paying off debt?

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About the Author Grayson Bell

I'm a business owner, blogger, father, and husband. I used credit cards too much and found myself in over $75,000 in debt ($50,000 in just credit cards). I paid it off, started this blog, and my financial life has changed. I now talk about fighting debt and growing wealth here. I run a WordPress support company, along with another blog, Eyes on the Dollar, which is another great personal finance blog.

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Leave a Comment:

Money Beagle says March 22

I have always thought of this as sort of a trick question, because in my mind, no matter which option you choose, it’s an awesome choice because you’re getting rid of debt!

    Grayson Bell
    Grayson Bell says March 22

    No question is a trick question! Yes, as noted in the post, either method is better than doing nothing. But, when push comes to shove, mathematically speaking, the avalanche method is the winner in most cases. Snowball is superior in the emotional,motivational winner. It just depends on which on you want to help you push to the end.

Andrew@LivingRichCheaply says March 24

I’m a math person and I didn’t understand the logic of the snowball method. But I’ve come to realize that often times emotions and motivation are even more important when it comes to debt payoff. What good is the math and logic if the person trying to pay off debt just gives up because they don’t see any results or victories

    Grayson Bell
    Grayson Bell says March 24

    Yeah, that’s why I added milestones into my debt payoff. I got the math wins (saved thousands), but also got the emotional ones with the milestones. It worked really good for me and I know others who have done the same. Both methods work just fine, it just depends on the person.

Jayson @ Monster Piggy Bank says March 26

I prefer the avalanche method because it saves me much money compared with the snowball, in the long run. But, snowball has its own advantages on the other hand. As long as I am motivated during the dept repayment process, I am completely fine with avalanche method.

Aaron says March 27

Hey Grayson – I recently wrote an article a new debt payoff strategy. Like the debt snowball / avalanche, it helps prioritize your debts.

The trick to this new method is it also helps organize your debt payoff plan in a way that helps raise your credit score. And at a certain point, it helps you set aside money to meet certain goals, like saving for a down payment on a house.

We call it the Debt Igloo. You paid down an insane amount of debt using the avalanche method, I’d love to get your feedback on the Debt Igloo strategy and see how it stacks up!

Brian says June 10

I really like this article but it was lacking an additional step that can be taken. Since it was omitted I’ll call it avalanche 2.0. Mathmatically speaking the APR on any loan isn’t the sole factor in determining which one to pay off first. The desire should be to pay off whatever loans are charging the most in accrued interest daily. If you have a $1,000 dollar loan balance with a 19.99% APR versus a $200,000 with a 2.00% APR which would you chose to payoff?

I only add this as a comment for others to review. If the goal is to be limiting overal costs in the “big picture” then you must account for the daily accruals and always apply earnings to the loan(s) that have a greater impact of decreasing costs.

Chad says June 22

There are other methods our there, but these are the most common and practical methods. “out there” is what I know you meant.

    Grayson Bell
    Grayson Bell says June 22

    Yep! and good catch. I had updated that, but apparently it didn’t want to actually save.

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