If you have several debts, the order you pay them off changes how much interest you pay and how long it takes before you feel progress. The two best-known strategies, the snowball and the avalanche, use the same mechanics and differ only in which debt they attack first.
How both methods work
- List every debt with its balance, interest rate and minimum payment.
- Decide on a fixed total you will pay each month, more than the sum of the minimums.
- Pay the minimum on every debt, and put everything left over toward one target debt.
- When the target is paid off, add its minimum payment to the extra and move to the next target. Your monthly total never changes, but more of it goes to principal each time a debt disappears.
The only difference is the order of the targets.
- Avalanche: highest interest rate first. Mathematically, this always costs the least interest.
- Snowball: smallest balance first. You close your first account sooner, which keeps many people motivated.
Example 1: the methods agree
A 1,000 dollar store card at 24%, a 3,000 dollar credit card at 19% and a 6,000 dollar personal loan at 11%, paying the minimums plus 250 dollars extra a month. Here the smallest balance also has the highest rate, so both methods pay the store card first, then the credit card, then the loan. Both finish in 20 months with about 1,176 dollars of interest. Paying only the minimums would take about 48 months and cost about 2,912. This situation, where the methods choose the same order, is common.
Example 2: the methods disagree
An 8,000 dollar credit card at 26%, a 600 dollar card at 15% and a 7,000 dollar car loan at 5%, with 300 dollars extra a month.
- Snowball clears the 600 dollar card in month 2, the car loan in month 15 and the big card in month 25, paying about 3,484 dollars of interest.
- Avalanche attacks the 26% card first and finishes everything in month 24, paying about 2,311 dollars of interest.
Here the snowball costs about 1,170 dollars more, because the expensive card keeps charging 26% for an extra year while the cheap car loan gets paid down. When a large balance carries your highest rate, the avalanche is worth a lot.
What research says about motivation
A 2012 study by David Gal and Blakeley McShane in the Journal of Marketing Research looked at thousands of people in a debt settlement program. Those who closed out individual accounts were more likely to eliminate all their debt, regardless of the dollar size of the accounts they closed. The authors were careful to say this does not prove the small wins caused the success, but it supports the idea behind the snowball: visible progress helps people keep going.
Choosing
- If your smallest debts also have the highest rates, the question is moot. Both methods do the same thing.
- If your highest-rate debt is also large, use the avalanche, or at least look at the cost of the snowball before you choose it.
- If you have tried and abandoned a payoff plan before, the snowball's early win may be worth a modest premium.
- A hybrid works too: knock out one or two tiny balances for momentum, then switch to the avalanche.
Making either plan work
- Stop adding to the debts. Use cash or a debit card while you pay down cards.
- Keep a small emergency fund, even 1,000 dollars, so a car repair does not go back on a card.
- Look for a lower rate. A 0% balance transfer or a consolidation loan can save more than either method, but transfer fees are commonly 3 to 5% of the amount moved, and the promotional rate ends.
- Automate the payments so the plan does not depend on willpower each month.
Compare both on your own debts
Enter your debts in the debt payoff calculator. It runs the avalanche, the snowball and minimum payments side by side and shows each plan's debt-free date, total interest and payoff order, so you can see exactly what the choice costs before you commit.
Estimates only, not financial advice. Examples assume fixed rates and no new charges.