Debt avalanche versus debt snowball: what’s the difference?

Debt Avalanche vs. Debt Snowball: An Overview

Paying off a debt is not an easy task, especially if you pay the minimum amount due each month. To get free and clear payouts, you often need to speed up payouts. There are two distinct strategies for settling outstanding balances: avalanche of debt method and the debt snowball method.

The debt avalanche and debt snowball apply to most types of consumer debt: personal, student, and auto loans; credit card balances; medical bills. They do not work with mortgage payments and should not be attempted with them.

Each method requires you to list your debts and make minimum payments on all but one. Then, once the card is paid off, you target another balance, and so on until you have cleared your debts. You can also use a combination of both methods. Pick a debt that is relatively small (the snowball method) but carries a high interest rate (the avalanche approach) to tackle first. If both methods seem insufficient, you may consider debt relief Instead.

The two strategies diverge on which debt you choose first. In the debt avalanche method, you pay extra money for the debt with the highest interest rate. With the debt snowball method, you pay off the smallest debt first and work your way up, regardless of the interest rate. While both are useful strategies for eliminating debt from your life, one method could be easier to follow and have a significant impact on your finances.

Key points to remember

  • Debt avalanche and debt snowball are two types of accelerated debt repayment plans.
  • The debt avalanche method involves making minimum payments on all debts and then using the additional funds to pay off the debt at the highest interest rate.
  • The snowball method of debt involves making minimum payments on all debts, then paying off smaller debts before moving on to larger ones.
  • The debt avalanche method may result in lower interest payments over time, but requires discipline.
  • Both Debt Repayment Plans Are Useful and Can Help You regain financial freedom. Specialized use debt repayment calculators to know when you will pay off your debt and how much interest you will pay.

Avalanche of debt

The debt avalanche method involves making minimum payments on all of your overdue accounts, then using the remaining money allocated to your debts to pay the highest bill. interest rate. Using the debt avalanche method will save you the most in interest payments.

Example of a debt avalanche

For example, if you have $3,000 more to spend on paying off debt each month, the debt avalanche method will get your money the most. Imagine that you have the following debts:

• Credit card debt of $10,000 at 18.99% annual percentage rate (APR)

• Car loan of $9,000 at an interest rate of 3.00%

• Student loan of $15,000 at an interest rate of 4.50%

In this scenario, the avalanche method would have you repay your credit card debt first, and then allow you to pay off your remaining debt in 11 months, paying a total of $1,011.60 in interest. The snowball method would have you tackle the car loan first, becoming debt free in 11 months, but you would have paid $1,514.97 in interest.

By changing the order of your debts, you save hundreds of dollars in interest. For people with larger debts, the avalanche method can also reduce the debt repayment period by a few months.

Advantages and disadvantages of the debt avalanche method

By simply changing the order of your debt repayments, you can save hundreds of dollars in interest payments with the debt avalanche approach. For people with larger debts, the avalanche method can also reduce the debt repayment period by a few months.

The debt avalanche method is the best strategy for saving money and time, but it has its downsides. This primarily requires discipline – to invest all of your allocated extra money into paying off a particular debt, not just the minimum. The avalanche of debt won’t work as effectively if you lose motivation and skip a month or two of strategic repayments.

The debt avalanche approach also assumes a specific, constant amount of discretionary income that you can apply to paying down your debts. A bump in daily living expenses or an emergency could throw a crimp in the plan.

  • Minimizes the amount of interest you pay

  • Reduces the time it takes to get out of debt

  • Good for budget conscious people

Debt Snowball

The debt snowball method is to pay off the smallest debts first to brush them aside before moving on to bigger ones – a kind of “tackle the easy stuff first” approach. You list all outstanding amounts that you owe in ascending order of size. You target first to pay first, putting as much extra money into each payment as you can afford. The others for which you only pay the minimum. You target the next smallest for processing the additional payment when the first debt is settled.

Debt Snowball Example

Let’s see how the snowball effect works on our previous debt example. To recap, you have an extra $3,000 to spend on paying down debt each month, and you have the following:

• Credit card debt of $10,000 at an annual percentage rate (APR) of 18.99%

• Car loan of $9,000 at an interest rate of 3.00%

• Student loan of $15,000 at an interest rate of 4.50%

The snowball method would require you to focus on the car loan first because you owe as little money as possible. You’d fix it in about three months, then tackle the other two. As with the debt avalanche method, you would become debt free in about 11 months. However, you would have paid $1,514.97 in interest, or about $500 more in total.


The average credit card balance in the United States, according to a 2021 Experian report.

Advantages and disadvantages of the debt snowball method

It’s not easy to be enthusiastic about paying back what you owe, and it’s even harder if you can’t seem to reduce your debt. without a sense of progress, you may become inclined to throw in the towel early on. The significant benefit of the debt snowball method is that it helps build motivation. Because you see quick results – eliminating some outstanding balances entirely in just a few months – it encourages you to stick to the plan. That mountain of debt doesn’t seem so unscalable after all. Plus, it’s easy to implement – no need to compare interest rates or APRs; just look at every amount you owe.

The big downside of the debt snowball is that it can be more costly overall. Because you prioritize balances over APRs, you might end up paying more money in interest. Being completely free and clear can also take longer, depending on the nature of the debts and how often interest accrues.

Special Considerations

The snowball method and the avalanche method are both types of debt repayment plans—ways to pay off your debts faster by paying more than the minimum due each month. Of course, both assume that you can afford to commit additional funds to regularly pay off what you owe. If your income is erratic or unstable, or you think a layoff is imminent, you may want to stick to minimum payments.

If you apply any of these strategies to credit card balances, they should be credit cards that you don’t plan to use for new purchases. You cannot pay off a balance if you continually add to it.

Finally, exceptional circumstances with certain debts can alter your repayment schedule, so pay attention to them. However, no matter which debt repayment method you use, you want to clear that balance before the end of the particular introductory rate period, regardless of how it compares to your other bills. Otherwise, you will simply have added a new stack to your interest-bearing bonds.

What does debt snowball mean?

The debt snowball is a type of accelerated debt repayment plan where you list all of your debts and pay them off from smallest to largest balance. Once you’ve paid for one card, you send that payment to the next card, and so on, until you’re done.

Does the debt snowball really work?

The debt snowball can effectively settle just about any debt except mortgages. Much of its appeal is psychological. It allows the debtor to target small balances to be repaid first and to stimulate their motivation.

Which is better, a snowball or an avalanche of debt?

Whether it is a snowball or an avalanche of debt depends on whether we are speaking in financial or psychological terms. In terms of savings, an avalanche of debt is preferable. As you pay down your debts according to their interest rates, targeting the most expensive ones first, this means you end up paying less interest. Some people find it much easier to stay motivated when they pay off small debts first, regardless of their interest rate. It depends on what motivates you.

Should I pay off a big or a small debt first?

Whether you should repay a big or a small debt first depends on your psychological makeup, such as whether or not paying off small debts will make you stay on a repayment plan. However, paying off a large debt is more profitable in the long run. The higher your outstanding balance, the more interest you pay. So, by settling the big debt, you’ll save on interest and free up funds for other bills and other purposes.

Is it better to save or pay off a debt?

Paying down debt has its benefits, especially if you’re incurring a high interest rate, which is what many of our minimum payments are for. Getting rid of debt will improve your credit score, helping pave the way for financing big items, like a house, in the future, and paying off debt will free up funds for other things, like savings. or investments.

As a general rule, if you can earn more interest on your money by investing it than your debts are costing you, it makes sense to invest. But it doesn’t have to be a proposal either/or– you can try to do a bit of both, simultaneously.

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