Introduction
If you are facing multiple debts—such as credit cards, student loans, and auto loans—deciding which one to pay off first can be overwhelming. The two most popular debt payoff strategies are the Debt Snowball method and the Debt Avalanche method. Both require you to make minimum payments on all your debts, but they differ in how you apply any extra money you have each month.
The Debt Snowball Method
The Debt Snowball method focuses on psychology and motivation rather than strict mathematics. In this strategy, you list your debts from the smallest balance to the largest balance, regardless of the interest rate.
How it Works
- Continue making the minimum payments on every debt.
- Take any extra money you have in your budget and apply it entirely to the debt with the smallest balance.
- Once that smallest debt is paid off, take the money you were paying toward it (the minimum payment + your extra money) and roll it into the next smallest debt.
- Repeat this process. As debts are eliminated, the amount of money you have to throw at the next debt grows like a snowball rolling down a hill.
Pros and Cons
- Pros: It provides quick "wins." Paying off an entire account feels incredibly rewarding, which keeps you motivated to stick to the plan.
- Cons: Because you ignore interest rates, you will likely pay more total interest over time compared to the Avalanche method.
The Debt Avalanche Method
The Debt Avalanche method is the mathematically optimal way to pay off debt. In this strategy, you list your debts from the highest interest rate to the lowest interest rate, regardless of the balance.
How it Works
- Continue making the minimum payments on every debt.
- Take any extra money you have and apply it entirely to the debt with the highest interest rate.
- Once the highest-interest debt is gone, roll that payment amount into the debt with the next highest interest rate.
- Repeat until you are debt-free.
Pros and Cons
- Pros: It minimizes the total amount of interest you pay, meaning you will become debt-free faster and spend less money overall.
- Cons: If your highest-interest debt also has a massive balance, it may take years before you see an account actually close. This lack of early "wins" can cause some people to lose motivation and abandon the plan.
Which Method is Right for You?
If you are highly disciplined, analytical, and motivated by saving money, the Debt Avalanche is the superior choice. It will unequivocally save you money. You can test this math yourself by looking at how high interest rates compound using our Compound Interest Calculator.
However, personal finance is highly behavioral. If you struggle with motivation, feel overwhelmed by the sheer number of bills you receive, or need immediate psychological reinforcement to stay on track, the Debt Snowball is highly effective.
To understand exactly how long it will take to pay off a specific debt based on your extra payments, utilize our Loan Repayment Calculator.