Snowball vs. Avalanche Debt Payoff Strategies
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Fast Facts
Purpose:
To pay off debt
Avalanche method:
Handling high-interest debt first
Snowball method:
Handling lowest amount of debt first
Suitable for:
Disciplined individuals who can make minimum monthly payments
Snowball vs. avalanche may not sound related to paying off debt, but it’s a perfect visual to illustrate how you can attack your debt. If you’ve decided this is your year to banish the credit card, student loan, or personal debt, then knowing the details and differences between these two debt payoff strategies could save you months of frustration.
Like anything else with our finances or even our lives, if we want something, then we have to formulate a plan. If you have a goal in front of you, you have to put a plan into action and attack it from all sides.
The snowball method and avalanche method are designed to do just that. To give you a strategy for payoff so your efforts are rewarded. And all indications are these strategies are much-needed in today’s economy. With 43 million Americans now carrying federal student loan debt, averaging $37,853, and total debt of $104,215, you need a plan to destroy this debt.
But each method has its pros and cons. One strategy may be better suited to your financial situation or personality. This is why you’ve come to the right place as we explore these popular debt payoff strategies.
In this article
The debt snowball method
Imagine a ball of snow sitting at the top of a mountain. Something pushes this snowball, and it starts to roll downhill. As it’s rolling, it’s getting bigger and bigger and gaining more momentum the further it goes. Eventually, the snowball is so large it crashes into a tree, and that’s it. The snowball is no more.
This visual is the essence of the snowball method.
The snowball method focuses on paying off your smallest step debt first. Once the smallest balance is paid off, you apply for the payments you previously used toward it to pay the next smallest debt.
To get started you:
- Make a list of your debts, and put them in order from your smallest debt to highest debt. Don’t worry about the interest rate.
- Start with the smallest balance and make this your focus. Put all extra money towards it each month.
- Meanwhile, pay the minimum monthly payments only on the other debts.
- Once you’ve paid off the smallest debt, move on to the second smallest debt. Pay what you paid towards the previous one PLUS the minimum payment amount. Your second smallest debt now becomes your focus.
- Repeat until all debts are paid.
A snowball example
Here’s what a snowball payoff plan might look like for someone who has five debts they are trying to pay off:
- $3,000 student loan at 4.25% APR
- $1,500 credit card at 15% APR
- $900 store credit card at 23% APR
- $800 store credit card at 22% APR
- $500 store credit card at 24% APR
With this example, you would pool all your resources to pay off the $500 balance first, while paying minimum payments on the other four. And the idea is to be aggressive with the $500, meaning any extra money goes towards this $500. This means selling excess items, taking on a side gig, skipping eating out for a month — whatever you need to do to pay off the $500 quickly. This gives you the momentum to keep working.
Once you pay off the $500, you continue the same level of urgency, work on the $800 debt, and so on.
Pros and cons of snowball
There are several positives to the snowball approach. This is a widely respected concept for debt payoff. It’s also the same method championed by personal finance expert Dave Ramsey. And it’s easy to see why.
The snowball method provides momentum because you see results quickly, perhaps even within a month, and you are encouraged by your results. The quick wins are the motivation you need to tackle the next one on your list.
The downside is that you potentially pay more in interest payments because you’re not tackling your highest interest rates first.
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The debt avalanche method
Imagine you’re skiing in the beautiful Swiss Alps and you look over to see a large mass of snow break off and drop down from the top. It starts to fall slowly, but as it continues sliding, the avalanche moves faster and faster. The mass isn’t getting bigger along the way; rather, it’s moving faster and faster. Pretty soon, the avalanche is faster than any skier on the mountain.
And so it is with the avalanche method.
The avalanche method makes you focus on the highest interest rate first, instead of the amount of your loan or credit card balance. Once the highest interest rate debt is paid off, you apply the payments you previously used toward it to pay the next highest.
To get started you:
- Make a list of your debts, and put them in order of your highest interest rate debt to the lowest. Don’t worry about the balance on each of them.
- Start with this highest interest rate and make this your focus. Put all extra money towards it each month.
- Continue to pay the minimum monthly payments only on the other debts.
- Once you’ve paid off your first balance, move on to the second-highest rate. Pay what you paid towards the previous one PLUS the minimum payment amount. Your second-highest interest rate now becomes your focus.
- Repeat until all debts are paid.
An example of avalanche
Let’s use the same numbers as our snowball example, but the debts are listed from highest to lowest interest rate this time.
- $500 store credit card at 24% APR
- $900 store credit card at 23% APR
- $800 store credit card at 22% APR
- $1,500 credit card at 15% APR
- $3,000 student loan at 4.25% APR
With this method, you would concentrate on the $500 store credit card because it’s the highest interest rate while paying minimums on the others. Once it’s paid off, you move on to the $900, and so on. And again, you should use the same intensity of applying any extra money towards the payoff.
Pros and cons of avalanche
The avalanche method also has its advantages and disadvantages.
With this method, you “save” the most money on interest because you’re paying the highest amount of interest off first. At the end of the debt payoff process, you can rest assured you did not pay any more interest on a card than you had to.
Conversely, focusing on higher interest rates is not as motivating. If you have a $10,000, $20,000, or higher loan balance or credit card debt, this may take a while to see both progress and experience the satisfaction of knocking out debt.
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Snowball vs. avalanche
Choosing a strategy is a personal choice. No one understands your financial situation better than you do.
But you should look beyond your finances since as you can see from our example, the numbers behind each strategy may be extremely close for you. Think about your personality. If you thrive on the small victories along the way or if you like the immediate satisfaction of paying off a small amount, then snowball is a better fit.
But if the thought of spending one extra dollar on interest keeps you up at night, then the avalanche method would better suit your personality.
Another factor to consider is which method gets you to your next financial goal faster. Let’s say your dream is to save for a down payment, but you need 50% of your high-interest debt paid off. Then the avalanche would get you closer to this goal.
There is no right or wrong answer here. The benefits are equal: your debt is paid down and your credit score is improved. But before you begin, you do need an honest conversation with yourself. This means writing down your goals, understanding the debt you carry, and knowing what works best for you. Plus this helps you think about other options, such as refinancing or debt consolidation, and if it’s worth the effort to go through that process with lenders.
If you need to see the numbers in black and white before you make your decision, then a snowball versus avalanche calculator is a helpful tool. There you can see the difference in timeline and interest paid by choosing one method over the other.
How long does it take to pay off debt?
So, how much in interest debt do you end up paying with these two strategies? How long does it take you to pay it off?
Here’s the beauty of it: the two methods are extremely similar in timeframe and not much difference in interest debt paid.
Using these same numbers and a debt calculator, you can easily calculate the numbers for each scenario.
With the snowball method, the total debt repayment and interest paid back is $7,429, and it will take 26 months to complete.
With the avalanche method, the total debt repayment and interest paid back is $7,425 and would also take 26 months to complete. That’s only a $4 savings by concentrating on the highest interest rate first (in our scenario).
Before you choose a strategy
Before you decide which path allows you to get debt-free as soon as possible, the number one step you need to take is to list out all of your debts. It sounds simple, but this can be a scary prospect if you have thousands of dollars in credit card debt, multiple student loans, or a personal loan.
But to run the right scenarios and understand how each method might work for you, you must deal with facts. List out your debts individually, and confirm the interest rate you pay for each.
That’s it. Don’t beat yourself up about it. Put the facts on paper and you’re ready to face your debt head-on with one of these tactics.
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FAQs
Which method will save me more money?
Generally, the avalanche method saves more money on interest payments over time because it targets high-interest debts first. However, the best method is the one that keeps you motivated and consistent in your debt repayment efforts.
Can I combine both strategies?
Yes, some people choose a hybrid approach. For example, they may start with the snowball method to gain initial momentum and then switch to the avalanche method to save on interest once they feel more motivated and confident.
How do I choose between snowball and avalanche?
Choosing between the two strategies depends on your financial goals and personal motivation. If you need quick wins to stay motivated, the snowball method might be better for you. If you're more focused on minimizing the total interest paid and have the discipline to stick with the plan, the avalanche method is typically more cost-effective in the long run.
The bottom line
Getting to the point where you know you need to tackle debt and you need a strategy is a good thing. This means you’re putting serious thought into reaching your debt payoff goal. Now it’s time to take action!
The snowball method and avalanche method are popular strategies for a reason — because they work by requiring you to focus on one debt at a time. So if you are looking for a focused, tactile approach to debt payoff, then the snowball or avalanche approach can get you there.
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Writer
Sara Coleman is a former corporate gal turned creative entrepreneur. She began writing professionally several years ago and now contributes to multiple websites, blogs, and magazines. She’s also an avid reader and can’t resist a great historical fiction novel. Sara holds a BA in journalism from the University of Georgia and can be found supporting her Bulldogs every chance she has. She resides in Charlotte, North Carolina, with her wonderfully supportive husband and three children. When she’s not ushering her kids to sports and dance lessons, she can be found creating content for her own website, TheProperPen.com.
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