Which Debt-Repayment Method Is Better?

  • The snowball and avalanche methods are two popular strategies for paying down debt.
  • The snowball method tackles your lowest balances first, offering small, more immediate wins.
  • The avalanche method prioritizes higher-interest debts, reducing your long-term costs most.
  • Read more stories from Personal Finance Insider.

Paying down multiple debts can be challenging. Having a strategy — and sticking to it — is key to making it happen.

Two common approaches you might consider are the snowball method and the avalanche method. Each offers a framework for effectively and efficiently addressing multiple debts. But the types of debt they prioritize differ. Here is what you need to know about them and how to decide which is best for your financial situation.

debt snowball vs. Debt avalanche: At a glance

The snowball and avalanche debt payoff methods can both help you reduce and eventually eliminate your debt. They are slightly different, though, and depending on your circumstances, one method may be faster or more affordable than the other.

  • Snowball method: With this strategy, you first focus on paying down your smallest debt. After that, you take on the next-smallest and so on until all your debts are paid off.
  • Avalanche method: This approach prioritizes your highest-interest debt first. Once that’s paid off, you focus on the debt with the next-highest rate.

What is the debt snowball method?

The debt snowball method prioritizes your lowest-balance debt. You’ll make minimum payments on all your debts and direct any extra funds to that smallest debt first. Once that is paid off, you then focus on the next-smallest debt (using the funds you freed up from paying off the previous balance) and repeat the cycle until all debts are paid off. This is said to mimic a snowball, which gets larger and gains momentum as it rolls down a hill.

“The snowball method can be implemented by listing your various debts in order from the lowest total balance to the highest balance and targeting paying off one debt in-full at a time in that order,” says Lauren Anastasio, Certified Financial PlannerTM and director of financial advice at stash. “By making the minimum payment on all of your other debts and putting all your extra cash toward the smallest balance obligation first, you’ll pay off entire loans or cards faster, reducing the total number of bills you have to pay each month.”

Though this is typically a more expensive than the avalanche approach — which tackles higher-interest debt first — the snowball method offers a potential “behavioral” incentive, according to David W. Barnett, owner of Grand Arbor Advisors.

“Personal finance involves both mathematics and behavior,” Barnett says. “The snowball method, while perhaps not as mathematically effective, can have significant behavioral value in that there is a strong sense of reward for paying a debt in full and reducing the number of outstanding debts.”

Generally, the snowball method is best if you want to reduce the number of debt payments you make each month or need a little extra motivation to pay down your debts.

“The debt snowball method is a great option for people for whom debt is a behavior problem,” says Bobbi Rebell, CFP® professional and personal finance expert at Tally, which provides a financial app that helps you organize and pay off your credit cards. “If you need those quick wins to motivate you to make progress, the debt snowball is the way to go. It will not save you on cost since you’re not paying on the highest interest rate first, but it can help prompt behavior changes to keep you consistent and maintain momentum.”

Debt snowball pros and cons

Example of paying down debt with the snowball method

Say you have a personal loan with a balance of $4,500, a credit card balance of $8,000, and a car loan for $20,000. With the snowball method, you’d make the minimum payments on your credit card and car loan while putting any extra funds you have toward your personal loan.

Once you pay off the personal loan, you’d start focusing on your credit card and then, finally, your car loan.

What is the debt avalanche method?

With the avalanche method, you pay off your debts based on the interest rate, focusing your extra funds on the highest-interest debt first. When that debt is paid off, you move down the ladder to the debt with the next-highest rate, and so on.

“You make minimum payments on everything, and throw as much as you can toward the debt with the highest interest rate,” Rebell says. “Once you’ve paid off the debt with the highest interest rate, roll that payment toward the next debt with the highest interest rate. Repeat until you’ve paid off all your debt. Like an avalanche, there’s no stopping it once momentum starts .”

The goal of this strategy is to prioritize your most expensive balances and reduce your overall interest costs.

“From a purely mathematical view, the avalanche method will always result in the most debt reduction per dollar, since the most expensive debt will be eliminated first,” Barnett says. “The intention with this method is to eliminate your highest-interest-rate debts first in order to save money.”

This approach is best if you’re looking to save as much money as possible, but it does have some drawbacks. For one, it can be frustrating not to realize results quickly. It also means you will need to continue juggling several debts for longer.

“This method works best for people who have a lot of debt or high-interest rates on their debt, says Thomas Racca, manager on the

personal finance management

team at Navy Federal Credit Union. “This method can be frustrating because it may take longer to reduce the different avenues of debt you have, but it will pay off the debt fastest by prioritizing the higher debt amounts first.”

Debt avalanche pros and cons

Example of paying down debt with the avalanche method

Here’s what the avalanche method would look like in action if you had three debts: $3,000 on a credit card at a 15% interest rate, $8,000 on a personal loan at a 9% rate, and $25,000 on a car loan at a 6% rate .

In this scenario, you’d put all extra discretionary funds toward the credit card while only making minimum payments on the personal and car loans. Once you pay off the credit card, you would focus on paying down the personal loan (which has the second-highest interest rate) and the car loan after that.

Pick a strategy and commit

If you’re having trouble paying down your debts, both the snowball and the avalanche strategy can help. The key is to pick a debt and prioritize it, according to Anastasio.

“The last thing you want to do is spread your effort around by paying a little extra on all of your bills,” Anastasio says. “If you have multiple credit card balances, loans, or other debts you want to pay off, choose one debt, commit to paying the minimum on all your others, and put every extra dollar you have to pay off that one debt in full. This is the quickest way to eliminate the number of bills you have to pay.”

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