Debt Snowball vs. Debt Avalanche: Which Method Is Best for You

Paying off debts can be incredibly daunting. You can feel like you’re standing at the bottom of a cliff, trying to figure out how to climb it without a safety net. But there are strategies that can make the debt repayment process a little easier and more strategic. We’re going to break down two of those — debt snowball and debt avalanche — in an effort to help you decide which one might be better for you.

What Is the Debt Snowball Method?

The debt snowball method takes the approach of focusing on paying off your smallest debts first and then moving on to bigger ones. The goal is to build your motivation and sense of accomplishment by settling your debts faster — just like a snowball rolling downhill.

So How Does It Work?

Let’s take a look at an example person. We’ll call her Margaret. Margaret is carrying the following debt loads:

• $6,730 of credit card debt with an interest rate of 22%

• $11,000 remaining on her car loan with an interest rate of 4.8%

• $2,000 on a personal loan with an interest rate of 12.26%

With the snowball repayment method, Margaret would focus on repaying the personal loan first, since that is the smallest loan amount she has.

Note: This does not mean that Margaret would pay nothing toward those other debts. It’s important to keep making the minimum payments on all of them. When you have additional funds at the end of the month, however, you would take that money and put it toward the smallest debt. So, if Margaret has an extra $200, then she would make the minimum payment on the personal loan, plus the additional $200.

What Is the Debt Avalanche Method?

The debt avalanche method, rather than focusing on the smallest debt amount, prioritizes paying off the debts with the highest annual percentage rate (APR) first and then moving on to the next highest. The primary goal with this path is to pay less interest over time.

So How Does It Work?

Let’s go back to our previous example person, Margaret. As a refresher, Margaret is carrying the following debt loads:

• $6,730 of credit card debt with an interest rate of 22%

• $11,000 remaining on her car loan with an interest rate of 4.8%

• $2,000 on a personal loan with an interest rate of 12.26%

With the avalanche repayment method, Margaret would focus on repaying the credit card debt first, as it has a higher interest rate.

Note: This does not mean that Margaret would pay nothing toward those other debts. Just as with the snowball method, it’s important to keep making the minimum payments on all of them. When you have additional funds at the end of the month, however, you would take that money and put it toward the debt with the highest interest rate. So, if Margaret has an extra $200, then she would make the minimum payment on the credit card debt, plus the additional $200.

Which Debt Repayment Method Is Better for You?

There is no wrong answer to this question because it entirely depends on your debt and financial situation and what your repayment goals are.

Debt Snowball: Pros and Cons Pros:

• It can be very motivating to get the quick wins of paying off smaller debts and encourage you to stick with your plan.

• Eliminating these smaller debts then frees up more money to go toward the larger debt payments.

• It’s an easy, straightforward method to implement. You just make a list of debts from smallest to largest and work your way down.

Cons:

• Because you’re focusing on debt balance, you’re likely to pay more in interest over time.

• Not minimizing your interest payments means it could take a little longer to pay down all your debts compared to the debt avalanche method.

Debt Avalanche: Pros and Cons Pros:

• By concentrating on the debts with higher interest rates, you’re going to pay less in interest payments, which can save you more money compared to the snowball method.

• You’ll reduce your overall debt faster since interest fees will decrease as your debt decreases, which means you’ll spend less time in debt.

• Some people find paying off high-interest loans sooner can be more motivating.

Cons:

• You won’t have the quick wins from the debt snowball method because it will take longer to pay off that first balance, so you will need patience and diligence.

• Because it takes longer to pay off higher interest loans, your debt-to-income ratio will likely remain high for longer as well.

So How Should You Choose?

You’ll need to look at your finances and debts as well as your own personality and preferences in order to pick which method will work best. It’s also important to remember that repaying any unsecured, short-term loan as quickly as possible will help minimize your overall costs, regardless of which repayment method you choose.

Credit bureau Experian recommends the debt snowball method if you:

• Need a plan that helps you stay motivated, as you’ll be able to see quicker wins.

• Feel overwhelmed by multiple debts, like multiple credit cards with equally high interest rates.

• Want a clear, easy-to-use path forward that you can get started on quickly. They recommend the debt avalanche method if you:

• Are motivated by knowing you’ll save more money this way over the long haul.

• Have debt with particularly high interest rates, like a credit card or personal loan, that you can target for payoff.

• Are committed to sticking with your plan, as it will sometimes take longer to see wins.

Conquer the Mountain of Debt

It’s normal to feel swamped by debt and unsure of how you’re going to get out from under it, but there are paths forward that can work for you. Your first step is to sit down and tally up all the debts you’re currently paying off so you have the information you need to make an informed decision. Whether you choose debt avalanche or debt snowball, you can get debt-free step by step. If you still need help figuring out which one is right for you, be sure to consult a financial advisor for advice on your personal situation.