How to Pay Off Debt: Avalanche vs. Snowball

Sometimes all you need is a plan and suddenly your goals feel more possible, right?

If you’ve been wanting to get out of debt but just can't seem to make it happen, you might want to adopt a debt payoff strategy – an accelerated plan to help you stay focused and pay off debt fast. Two of the most popular methods are called debt snowball and debt avalanche:

  • Debt snowball – Start with paying off your smallest debt first
  • Debt avalanche – Start with paying off your debt with the highest interest rate first

There’s more to it than that, so let’s dive into the details. First, you’ll want to list out all your debts with the current balance, minimum monthly payment and interest rate (info you can find in your monthly statements). These payoff strategies work for credit card balances, personal loans, auto loans, student loans, medical bills, and other consumer debt – just not mortgages. 

Here’s an example list to give you a better idea:
Debt Balance Minimum payment Interest rate
Credit card #1 $5,000 $35 18% APR
Credit card #2 $6,800 $75 25% APR
Auto loan $22,000 $450 5% APR
Personal loan $2,500 $350 10% APR

How debt snowball works

With the snowball method, you make your minimum payment on all your debts every month (this is an important step to avoid fees and keep your credit score intact), then you focus extra efforts on paying down your smallest debt. This means that any extra cash you have every month should go toward that smallest debt.

So, with the example list above, you would pay extra on your $2,500 personal loan until it’s paid off. Then, you’d move on to the next smallest debt on the list and so on. Once each debt is paid off, you have one less minimum payment to make every month, which means you free up cash that can go toward paying off your other debt.

Who should use debt snowball? Anyone who needs some extra motivation could benefit from the debt snowball method. Because it focuses on short-term wins and paying off smaller amounts quickly, you can feel like you’re making fast progress and give yourself the momentum you need to keep going.

How debt avalanche works

Just like the snowball method, the avalanche method requires you to make minimum payments on all your balances every month. But then you focus any extra efforts on paying off the debt with the highest interest rate first. Since higher rates are more expensive, the avalanche method helps you reduce your interest charges, and you can then put any savings toward paying down debt even faster.

For example, using the list above and the avalanche method, credit card #2 with its 25% APR would be your main target to pay down as fast as possible. Once that was paid off, you’d move on to credit card #1 with its 18% APR.

Who should use debt avalanche? Anyone who is savings oriented will appreciate the avalanche method. Since it focuses on eliminating your most expensive debt first, you’ll save money, and you can feel good that you’re being smart about how you pay off debt. However, you’ll need to stay disciplined since a big payoff win can take longer to achieve. 

Which method is right for you?

It all depends on what’s most important to you.

The debt snowball method has you pay off your smallest debt first, which then frees up your cash to pay off other debt. It’s the better method psychologically, giving you a quick win and keeping you motivated.

  • PRO: You’ll see results faster.
  • CON: You may pay more in interest charges.

The debt avalanche method has you pay off your debt with the highest interest rate first to eliminate your most expensive debt as quickly as possible. It’s the better method financially, helping you save by paying less interest.

  • PRO: You’ll save more money.
  • CON: It may take longer to feel like you’re making progress.

Other considerations

It’s important to understand that both plans require extra income in order to work, with the idea that you put extra money toward your debt every month to pay it off faster. If your budget is stretched thin, you may want to hold off on using one of these methods. It may be better to just pay the minimum balance and keep yourself afloat. (And if you’re in a really bad situation, you might want to look into debt relief to negotiate your payments.)

It's also worth noting that if you want to pay off a credit card balance with the snowball or avalanche method, you'll want to avoid putting new charges on the account. It’s hard to dig yourself out of a hole if you keep adding to it.

Ready to get started?

You’ve taken a big first step just by learning about debt payoff strategies – congrats! Now, put your knowledge to work. Start by listing out your debts and choosing your favorite method. Before you know it, you’ll be on your way to financial freedom.