Debt Snowball vs. Avalanche Method: What’s the Difference?

Credit card, student loan and car payments keep piling on, and despite how many payments you make, the mountain of debt doesn’t seem to shrink. If you’ve ever felt stuck in this endless loop, you’re not alone. Whether it’s high credit card interest or a student loan that feels like it will never end, managing multiple debts can be overwhelming.

When it comes to paying down debt, there’s more than one way to tackle the situation. Two common debt repayment strategies include the debt snowball and the debt avalanche methods. Each method offers a different approach to debt management. Let’s break down the pros and cons of both strategies to help you decide which method works best for your financial journey.

What is the debt snowball method?

The debt snowball method is a strategy to help you pay off debt step by step — and stay motivated while doing it. You begin by focusing on paying off your smallest debt first, no matter what the interest rate is. Each time you pay off another debt, your available payment amount “snowballs,” or grows larger and helps you pay off the next one even faster.

The debt snowball method can help you build momentum and keep going until you’ve wiped out the debt you owe.¹

How does the debt snowball method work?

The debt snowball method involves four simple steps:²

1. List out your debts from smallest to largest: Be sure your list includes all your debts, such as credit card debt, personal loan debt and student loan debt. Order them from smallest balance to largest to get an idea of where to start.
2. Pay off the smallest debt first: Allocate as much extra money as you can toward your debt with the smallest balance. As you do this, remember to pay the minimum balance on all your other debts when they are due, so you don’t miss payments and incur late fees.
3. Repeat with the next smallest debt: Once you pay off your smallest debt, move on to the next smallest debt on your list. Continue to make the minimum payments on your other debts.
4. Continue the process until you pay off all your debt: You’re not done with the debt snowball method until you’ve paid off all your debts. If you have many debts, it may take months or even longer to complete, but with persistence and dedication, you’ll get there.

For example, let’s say you have the following debts:

• Credit card A: $500 balance, 18% APR
• Credit card B: $1,200 balance, 20% APR
• Car loan: $5,000 balance, 6% APR

Using the debt snowball method, you’d focus on paying off Credit card A first while making minimum payments on the other debts. Once Credit card A is paid off, you’d move on to Credit card B and finally, the car loan.

Pros and cons of the debt snowball method

Just like all financial strategies, the debt snowball method comes with some benefits and drawbacks:³

Pros

• Quick wins: Just thinking about paying off multiple debts can be overwhelming and discouraging. By starting with the smallest debt, you may quickly get a sense of accomplishment from paying off your first few debts.
• A clear step-by-step method: Because the debt snowball method involves ordering your debts from smallest balance to largest, it’s a straightforward process that doesn’t include special tools or expert knowledge. You only need a pen and paper to get started.
• Built-in motivation: Seeing debts disappear one by one can help you stay encouraged to stick with the process, even if the overall journey takes time.

Cons

• May cost more in interest: Because you’re not prioritizing paying high-interest debts, you could end up paying more overall compared to other paydown methods.
• Might not be motivating for everyone: If you prefer focusing on the biggest balances first, paying down smaller debts may feel less impactful.
• Doesn’t reduce overall debt right away: Since you’re targeting smaller balances first, your total debt amount may not shrink as quickly in the beginning.

What is the debt avalanche method?

Instead of focusing on the size of the debt, the debt avalanche method focuses on each debt’s annual percentage rate (APR) — the yearly cost of borrowing money, including interest and fees. With the debt avalanche method, you’ll aim to save on interest by targeting the debt with the highest APR first. You’ll then work toward the debt with the next highest APR and so on, until you’ve paid off all your debts. Depending on your debts and their APRs, this method could save you a significant amount of money.⁴

Let’s consider the same debts as above:

• Credit card A: $500 balance, 18% APR
• Credit card B: $1,200 balance, 20% APR
• Car loan: $5,000 balance, 6% APR

With the debt avalanche method, you’d start by paying off Credit card B first because it has the highest APR. Once that’s paid off, you’d move on to Credit card A and finally, the car loan.

How does the debt avalanche method work?

If you’re interested in the debt avalanche method, here’s what you’ll need to do:⁵

1. List out your debts from the highest APR to the smallest: Your list should include all your debts, even those with lower APRs. For credit cards, you can typically find the APR in your online account or in the app. For loans, your APR will be listed in your loan agreement. If you have difficulty finding APR on a particular debt, you can always contact the lender.
2. Pay off the debt with the highest APR first: Focus any extra money you can spare on the debt with the highest APR. Additional funds could come from working more hours, earning from a side hustle, cutting back on non-essential spending or using a tax refund or gift. Every little bit helps. Just make sure you continue to pay at least the minimum on your other debts to avoid falling behind.
3. Repeat with the next highest-interest debt: Once you pay off the debt with the highest APR, move on to the debt with the next highest APR on your list. Again, remember to make your minimum payments on the rest of your accounts as you continue the process.
4. Continue until you’re debt-free: Keep paying off your debts in order of the highest APR to the lowest until you’ve paid off all your debt. Stay persistent, and don’t give up.

Pros and cons of the debt avalanche method

Here are some common advantages and downsides of the debt avalanche method.⁶

Pros

• Save money on interest: By focusing on the highest-interest debts first, you could save a great deal of money on interest. Those savings may help you work toward other goals like saving for a reliable car to commute to work or finally taking a much-needed vacation.
• Pay off debt faster: The debt avalanche method may allow you to become debt-free sooner than you think. High-interest debts grow more quickly because they accumulate more interest. By tackling those first, you can lower your balance faster.
• Follow a straightforward plan: With the debt avalanche method, you simply list your debts from the highest APR to the lowest. Like the debt snowball method, it’s a straightforward process, and you don’t need any financial expertise — just consistency and commitment.

Cons

• Challenging to stay motivated: It may take a little longer to pay off your first debt with the debt avalanche method, so you might find it harder to stay motivated. Since you won’t get the quick victories of paying off small debts like the debt snowball, you’ll want to find ways to stay disciplined and motivated. You might ask a friend to hold you accountable, or you could create a debt payoff chart to see your progress.
• Narrow focus: The debt avalanche method is a purely mathematical approach that doesn’t take your circumstances into account, like emotional spending triggers, unexpected expenses or financial emergencies. For some, focusing solely on APR may not be the best strategy and could lead to further debt.
• Slightly more effort to get started: While the debt avalanche method is fairly straightforward, you will still need to take the time to look up each debt’s APR before beginning.

Debt snowball vs. avalanche: Which one is best for you?

When it comes to paying off debt, there’s no one-size-fits-all solution. Your debt repayment strategy should depend on your personal goals and financial situation. If you’re worried you won’t be motivated to pay off all your debts, the debt snowball method may be the way to go. On the flip side, if you have a lot of high-interest credit card debt and want to ensure you minimize interest charges, the debt avalanche method may be the better fit.⁷

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Tackle debt with the method that works for you

No matter which method you choose –– snowball or avalanche –– the most important step is simply getting started. Both strategies give you a clear plan to follow and a path toward financial freedom. Whether you need the motivation of quick wins or want to maximize your savings on interest, what matters most is picking the approach that fits your lifestyle and sticking with it.

Sources

1,2,3,4,5,6 https://www.experian.com/blogs/ask-experian/avalanche-vs-snowball-which-repayment-strategy-is-best/#s1
7 https://www.investopedia.com/articles/personal-finance/080716/debt-avalanche-vs-debt-snowball-which-best-you.asp