Debt Avalanche vs. Snowball

Debt Avalanche vs. Debt Snowball: Which Strategy is Better?

Are you tired of being in debt? Between the car loan, the student loan, and credit cards too, does it seem like you’ll never pay it all off? Maybe you’ve heard of the debt snowball vs. the debt avalanche, but don’t know much about them. Get rid of all that stress and pay them off with one of these great debt elimination plans!

Regardless of your choice between debt avalanche versus debt snowball, the next step is maximizing your monthly debt payments. Here’s where you can really make a difference in how fast you pay off those loans. You could shave years off your debt and save hundreds or even thousands of dollars in interest by repaying just an extra $50 per month!


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Debt Avalanche vs. Debt Snowball: Similarities

The first step, regardless of which debt elimination plan you choose, is to start with a list. Make a list of all your loans, how much you owe on each of them, the monthly minimum payment, and the interest rate on each loan.

Here’s an example.

LoanAmount OwingMinimum Monthly PaymentInterest Rate
Car loan$15,000$2506.5%
Student loan$35,000$2504.0%
Store credit card$1,500$2519.5%

With either the debt snowball or the debt avalanche, you’re going to pay only the minimum payments on all your loans except for one. You’re going to send every extra dollar you have to one of the debts until it is paid off. Then do the same with the next debt in line.

As you pay off the first debt, you’ll have even more money to throw at the next debt. You’ll start to see progress sooner than you might think!

The only difference between the debt avalanche and debt snowball is the order in which you choose the first debt to focus on.

The Debt Snowball

Examine your list of loans. You will start paying down the debt with the smallest balance, regardless of interest rates.

In our example above, we owe $15,000 on the car loan, $35,000 on the student loan, $2,500 on Visa, and $1,500 on a retail store credit card.

The retail store credit card has the smallest balance, so we’ll start paying that one off first.

Let’s say we have $800 each month to put towards our debts. We’ll pay the minimum payments on the car loan, student loan, and Visa. And put all the rest towards the store credit card. That is, we’ll pay $250 for the car loan, $250 for the student loan, and $45 for the Visa. That leaves us with $255 to pay towards the store credit card each month.

At this rate we’ll have the store credit card fully paid off in less than 7 months!

Once that store credit card is paid off, we’ll tackle the next smallest loan – the Visa. We’ll pay the $45 we were already paying to Visa, plus the $255 that we were paying to the retail card, for a total monthly payment of $300!

At this rate, we’ll have the Visa paid off in 9 months!

Number 3 is the car loan. We add the $300 we were paying to the Visa, to the $250 we’re already paying on the car loan, for a total payment of $550 each month.

You can see how our payments just snowball, as we pay off the small loans and add those funds to pay off the next.

When you clear away those small loans first, you see quick progress, which builds confidence and motivation.

The Debt Avalanche

With the debt avalanche method, instead of starting with the loan with the smallest balance, you start with the highest interest rate.

In our example, that would be the Visa card. Once that’s paid off, the next highest interest rate is the store credit card. Then the car loan, and lastly the student loan.

It will take a little longer to see that first “win”. But mathematically the debt avalanche makes the most sense, because you will pay less in interest if you target your debts this way. In the end you’ll pay off your debts faster, too.

Which is Better?

Some people have very fierce opinions about which method is better when comparing the debt avalanche vs. snowball. Dave Ramsey is a strong advocate for the debt snowball. It builds motivation and a habit of paying down debts. Others believe the math is more important, and therefore favour the debt avalanche. In the end, it likely doesn’t make much difference – maybe a couple of months and a few hundred dollars over the course of 5 or more years.

The best choice is which method appeals most to you. Will you be more motivated to stay on track by the quick wins of the debt snowball? Or does the math win out, with the idea of spending as little as possible on interest and becoming debt-free as soon as possible, with the debt avalanche?

You may have other considerations too, such as needing to repay a family member first, even though it’s not the smallest amount or the highest interest.

How to Find the Money to Pay Down your Debts Faster

The key to paying off debt quickly, regardless of which strategy you choose, is to put as much as you can towards your debt. A lot of people don’t know where to start with a budget or financial plan, and so they never start at all. If this describes you, you are not alone! So many people are intimidated by budgeting.

The Highlighter Budget

The highlighter budget is perfect for those who hate spreadsheets. It’s one of the easiest ways to track your expenses, which is an essential first step in any good financial plan. The highlighter budget is simply looking at how you have already spent your money. Then you get to decide if you want to continue spending it this way. Print out your latest bank statements and credit card statements, then highlight your income and spending by category.

The 50/30/20 Budget

The 50/30/20 budget rule is a simple and intuitive plan to help you reach your financial goals. Allocate 50% of your after-tax income to needs, 30% to wants, and 20% to savings and debt repayment. Budgeting doesn’t have to be intimidating. And it doesn’t have to mean giving up your latte. But in order to be financially responsible and we do need to have a certain level of tracking. Feel free to cut back even further on your wants and needs in order to send more than 20% of your income to paying off your debt even faster!

Spend Less or Earn Extra Income

Look at all the ways you can cut back your spending on household bills and groceries. Then consider ways to earn extra income. Selling off some things you don’t use anymore can give you a few hundred extra dollars to put towards one of your debts. Or bring in a little extra each and every month with a side hustle like dog sitting. Put all the extra income towards your target debt to pay it down even faster.

An extra $100 each month can shave months or even years off your debt repayment!

Final Thoughts

The most important part of paying down your debts is changing behaviours. Find any extra money you can to put towards debt. Then choose between the debt snowball or debt avalanche method, whichever appeals to you and will keep you on track. Make those payments every month, and you’ll start seeing progress before you know it.

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Kari is the founder and author of the popular personal finance blog, Money In Your Tea. She has been interviewed on the Millennial Money Podcast, has featured articles in Future Females, and appeared in other financial sites. Money In Your Tea was awarded “Top 20 Blogs in 2020”, by EAT Money. Kari works part-time in economics, volunteers as treasurer for school councils, and manages her family’s investments and personal finances.