Debt Snowball or Debt Avalanche. Which is Better?

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If you’re trying to pay off your debt fast, you may have come across two different gangs.

One believes in the debt snowball and the other believes in the debt avalanche.

Personally, I think anything that gets you to pay off debt fast is a win.

It doesn’t matter if you’re paying off credit cards, cars, student loans, payday loans, or a loan from grandma. As long as you’re getting it done at a pace that’s quicker than making minimum payments you’ll be good with me.

These two rival gangs go back and forth quite a bit on the internet though. So that means it’s time for me to break down these two options so you can decide which side you wanna rep.

It basically comes down to this- with the debt snowball you get quick wins creating momentum. This positive momentum creates confidence that you CAN pay off debt and it’s so good the Harvard Business review did a study on it.

Now the avalanche can potentially save you more money on interest over time. And saving money is a pretty good thing around these parts.

The main difference between the two: how you organize your debt.

Trying to decide which method is better between the debt snowball and the debt avalanche? Check out this guide that walks you through real life examples of each to determine an answer.

Let’s take a look at a real-life example from a made-up guy named Steve:

Debt snowball vs debt avalanche chart

Steve has a total of $30,950 worth of debt owed to seven different creditors.

Debt Snowball Method

The debt snowball tells Steve to take his list of debts and rank them in order from the smallest balance to the largest balance. With the debt snowball the interest rate doesn’t matter at all.

Like I already told you, this is done so that Steve can get some quick wins under his belt and build some confidence.

This is Steve’s plan on the debt snowball:

  1. Steve creates a budget to determine how much extra he can pay on his debt every month (his snowball).
  2. Steve organizes his debts from smallest balance to largest balance like this:debt snowball vs debt avalanche
  3. Steve pays the minimum payment on all of his debts.
  4. Steve puts the extra money from his budget towards the debt with the smallest balance
  5. Once the smallest balance is gone, Steve applies the minimum payment from that debt AND the snowball from Step 4 to the new smallest debt.
  6. Steve keeps doing this until he’s debt-free.

As you can see from the chart above, Steve would send every extra dollar he could to Credit Card 2.

Once that debt was gone, he would then take the extra money and the minimum payment from Credit Card to and apply it to Credit Card 3. From there he’d just keep going down the list.

By the time he makes it to that Car Loan at the bottom, he’d be sending a massive chunk each month and knock it out pretty quickly.

If the thought of leaving a few bucks on the table by using the snowball method makes you absolutely cringe, then you just might be an avalancher.

Debt Avalanche Method

Now the debt avalanche gang does things a little differently on their side of town.

Instead of organizing their debts from the smallest to largest balance like the snowballers, avalanchers organize theirs from the largest to smallest interest rate.

So going back to Steve, this would be his plan as an avalancher:

  1. Steve creates a budget to determine how much extra he can pay on his debt every month (his snowball).
  2. Steve organizes his debts from largest interest rate to smallest interest rate like this:debt avalanche vs debt snowball
  3. Steve pays the minimum payment on all of his debts.
  4. Steve puts the extra money from his budget towards the debt with the largest interest rate.
  5. Once the debt with the largest interest rate is gone, Steve applies the minimum payment from that debt AND the extra money from Step 4 to the next debt on the list
  6. Steve keeps doing this until he’s debt-free.

Again, pretty simple stuff.

Now with Steve’s example his 3 smallest balances are still first. But notice how now he has his two largest debts right in the middle.

This could make him feel like the process of getting out of debt is just dragging along and he might lose a little motivation on this method.

If you choose the debt avalanche, you need to find ways to keep yourself disciplined and motivated throughout. If you can do that, you could save yourself some money on interest.

It requires being honest with yourself though. If you know you’re not really a self-starter and you quit a lot of things after a while, the avalanche may not be for you.

Debt Snowball vs Debt Avalanche

So here are just some of the pros and cons again:

  • The debt snowball method might cost you a little more in interest, but the quick wins and confidence gained can help you stay on course and finish the race.
  • The debt avalanche may save you money over the long-haul, but if one of your largest debts is one that you need to pay off first, you could lose motivation and quit altogether.

So now, let’s plug the numbers into the Debt Reduction Calculator (you can find a copy at the end of this post) and take a look at how much you could save with the avalanche and whether one is necessarily quicker than the other.

In order to do this, we must assign minimum monthly payments to each debt and set the correct date. We will use 1/1/2019 for the example.

debt reduction

By calculating the payment column, you can see that our minimum monthly payment is $1,399 per month.

In this example, we are going to assume that Steve has an extra $401 each month to send towards his debt. This brings his total debt repayment number to $1,800 per month.

We enter $1,800 into the Total Payment row on the Debt Reduction Calculator. This automatically populates his snowball as $401 as seen on the next row.

We then set our strategy to Snowball to test this one first.

Under the snowball method and with a start date of 1/1/2019, Steve would be debt free in August of 2020. Using the debt snowball method, he would have paid a total of $1,542.86 in interest.

debt snowball

Now let’s review the debt avalanche using the same debt reduction calculator and numbers

debt avalanche

We see that with the avalanche method, Steve would still become debt free in August of 2020 after paying off Student Loan 3.

However, with the debt avalanche method, he would have only paid $1,507.88 in interest.

Steve manages to save $34.98 by using the debt avalanche method.

But take a look at the charts again.

By using the debt snowball, Steve would have paid off 5 of his 7 debts within the first 11 months.

With the debt avalanche, he wouldn’t have paid off his 5th debt until month 17.

In some cases the results could be even more drastic- like not paying off your first debt for a year or two.

The same could be done with the debt snowball method. There are instances where you could pay thousands of dollars more in interest!

Which One Is Better?

I think too many times we ask the wrong questions and this is one of those instances.

The question isn’t just which is better- but, rather, which is best for me and my household.

When we paid off our debt, we used the debt snowball.

However, you may have the discipline to use the debt avalanche method.

Or you may need the quick wins of the debt snowball to keep you going.

Even better- you could start with one then switch to the other when it makes sense.

For example, let’s say you’re using the debt snowball.

And you owe the next creditor on the list $5,000 at 5% interest.

But you owe the one after that $5,300 at 17% interest.

Being rigid on the snowball would cost you a lot of money while staying flexible and switching to pay off the higher interest rate first could save you a lot of money.

Truth be told, the best debt elimination method is the method that works best for you.

If you’ve started to pay off your debt fast, let me know which method you prefer and why in the comments below.

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