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Published: Jan 13, 2023 9 min read

There are different strategies you can use to reduce your debt, but two of the most popular are the debt snowball and the debt avalanche methods.

The debt snowball pays off the smallest debt first, and the debt avalanche focuses on paying the high-interest debt first. The following guide explores the pros and cons of both methods, so you can decide which one is right for you.

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What is the debt snowball method?

The debt snowball method is a debt repayment strategy where you pay off your debts in the order of smallest to largest balance, regardless of interest rate.

With the debt snowball method, you will make minimum payments on all your debts and put any extra money toward the smallest debt until that first low balance is paid off. Once you pay off the smallest debt, you will take the money you were using to pay off that debt and use it to pay your next smallest debt, and so on.

Many people who use the debt snowball method track their progress using a spreadsheet. A spreadsheet will not only keep you organized but can help motivate you as you mark off your payments.

Pros and Cons of the debt snowball method

  • Easy to set up and track, especially if you use a debt snowball calculator to create your payoff schedule
  • Those who thrive with quick wins will stay motivated by paying off those small balances
  • As you pay off your smaller debts, you'll lower your monthly debt commitment
  • Won't save you as much in interest as other debt repayment methods unless your smallest debts also happen to be those with your highest interest rates
  • May take a little longer to get out of debt than with other methods because you're accumulating that extra interest

How to apply the debt snowball method

Let’s say you have $1,200 you can afford to put each month to pay the following debts:

Loan Type Loan Balance Interest Rate Minimum Payment
Credit card $9K 22.99% $260
Credit card $2K 24.99% $60
Auto loan $8K 3.50% $250
Student loan $18K 4.50% $300

Using the debt snowball method, the idea is to pay the $2,000 credit card first because it is the smallest of the four debts. You would make all your minimum monthly payments and send any additional money from your $1,200 repayment budget to that $2,000 card, paying off that first card balance.

You would then tackle the auto loan while continuing to pay the minimum payments on your other credit card and student loan. When the car loan is paid off, you'll say goodbye to that second credit card. Finally, all $1,200 will go to wiping out that student loan.

What is a debt avalanche?

A debt avalanche, also known as debt stacking, requires that you pay off your debt in order of the highest to lowest interest rate, regardless of your debt balances or the types of debt you have.

With the debt avalanche, you make minimum payments on all debts and then put any extra cash toward paying down the debt with the highest interest rate. Once you pay off that first debt, you take that money and put it towards the next highest interest rate and keep working through your debts.

Because you pay off your higher-interest debts first, you pay down your debts faster since you're saving on interest that can go toward the principal.

Pros and cons of the debt avalanche

  • Saves you the most money in interest payments
  • Is faster than other debt repayment strategies — if you're consistent with the payments
  • It could be several months or even a few years before that first debt is paid off
  • Because it might take a long time to pay off your first few debts, you will still be responsible for all those minimum payments until you finally get something paid off

How to apply the debt avalanche system

Here is how a debt avalanche repayment plan would work. (The following example uses the same numbers and loans used for the debt snowball method.)

Loan Type Loan Balance Interest Rate Minimum Payment
Credit card $9K 22.99% $260
Credit card $2K 24.99% $60
Auto loan $8K 3.50% $250
Student loan $18K 4.50% $300

With the debt avalanche payoff method, the 24.99% interest rate credit card will be the first debt you pay down while making minimum payments on your other three debts. Next, you focus on paying off the 22.99% credit card.

With just your two low-interest loans remaining, you next pay off your student loan and finally knock out the auto loan.

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What should you expect with the debt snowball vs debt avalanche repayment plan options?

While the snowball and avalanche methods approach debt repayment differently, there are some common things to expect when using either of these debt repayment strategies.

Know you can pay more than the minimum payments

Whether you're using the snowball or avalanche method, it's recommended you make minimum payments on all debts other than the one you're trying to pay off. However, you can modify this guideline to better suit your financial goals or budget. For example, you might add $25 to each of your minimums and then put any extra money toward the smallest balance card or highest interest rate.

If keeping up with all those minimum payments is too much, consider debt consolidation and combine all your debts into one loan with one monthly payment. Consolidation is only a good option for some people, so be sure to research and compare the best debt consolidation loans.

Be prepared to be flexible

Even the best-laid debt repayment plan might need to be updated over the course of your debt journey. Variable interest rates change. Perhaps you have to cover an emergency using your smallest balance card. If necessary, reorder your debts based on whatever repayment method you use. Change methods if you find it challenging to stick with your chosen repayment method.

The debt snowball and debt avalanche are great repayment strategies but don't forget about other tools that can be just as useful. Consider whether debt consolidation or professional help might move you along your repayment journey even faster. A repayment strategy won't do you any good once you're behind on payments. A debt counselor or other financial professional can advise you on how to negotiate with debt collectors and suggest the best repayment solution for your situation.

Don't keep adding to the credit card balance

Neither the snowball nor the avalanche method will improve your financial situation if you continue adding to your credit card debt. You can use a debt-to-income ratio calculator to help ensure you're moving in the right direction. Your debt-to-income ratio should gradually improve if you stick to your debt payoff plan and refrain from adding to your credit card balances. This, of course, assumes your income remains the same.

Debt snowball method or debt avalanche method — which is best for you?

To determine which is better, the debt snowball or debt avalanche, you need to decide whether knocking out individual debts or watching your monthly interest decrease will motivate you more.

An easy way to settle the debt avalanche vs snowball debate is to crunch the numbers using both methods and then consider whether those small wins or less interest will do more to keep you on track.

You can find a "debt snowball vs. avalanche" calculator online that will easily do the math for you and provide you with a payoff schedule for each method. Consider how long it will take to pay off your individual debts, your total debt and how much you'll pay in interest using each strategy.

Another common repayment strategy is to combine the two methods. Get a few quick wins using a debt snowball, then switch to the avalanche method to save on those bigger debts.

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Pay off your debt in a way that works with your financial goals

When determining the best debt payoff strategy for your debt load and budget, the decision is more complex than considering the debt snowball vs debt avalanche. Consider your financial goals as well. If your goal is to get out of debt quickly or to stop wasting money on loan interest, then go with the debt avalanche.

However, suppose your budget is tight, and getting out from under a few debts can create breathing room or allow you to put more money toward your emergency fund. In that case, the debt snowball might be the better option despite the extra interest you may ultimately pay.

Create a debt payoff plan you can live with and shift gears when necessary to complete your debt payoff journey.