Debt snowball vs avalanche: which is right for you

The idea behind both

If you have several debts, it is tempting to spread any spare money across all of them. It feels fair, but it is slow. Each balance shrinks a little and none of them goes away.

Both the snowball and the avalanche do the opposite. You pay the minimum on everything, so nothing falls behind, and then every extra dollar goes to one debt. When that one is gone, its whole payment moves to the next debt on the list. The payment grows each time, like a snowball rolling downhill, until the last debt is cleared.

The only difference between the two is the order of the list.

A worked example

Here are four everyday debts, $8,400 in all. The minimums add up to $350 a month, and this household can find $500 a month for debts, so there is $150 extra.

With the snowball, the extra $150 goes to the medical bill first, because it is the smallest. It is gone in month 3. Its $25 joins the $150, and the store card is cleared in month 6. Then the Visa, then the car. Debt free in 19 months, with about $1,072 paid in interest along the way.

With the avalanche, the extra goes to the store card first, because 26.9% is the highest rate. It is gone in month 4. Then the Visa, then the car, and the medical bill (at 0%) goes last. Debt free in 19 months too, with about $969 in interest.

So in this example the avalanche saves about $100, and the snowball gives a first win a month sooner. Neither is wrong.

The real enemy: minimums alone

Now the same $8,400, paying only the $350 of minimums and nothing more.

That takes about 61 months and costs about $2,760 in interest, nearly three times as much. In real life it is often worse, because card minimums usually shrink as the balance shrinks, so the payment drops and the debt drags on for longer.

That is the main lesson. Choosing snowball or avalanche matters far less than choosing one of them, and putting something extra on top of the minimums.

How to choose

Pick the snowball if:

• You have tried before and lost heart.
• You have several small debts you could clear soon.
• Seeing a debt disappear would keep you going.

Pick the avalanche if:

• One debt has a much higher rate than the others.
• Your biggest debt is also your most expensive one.
• You are motivated by the numbers, and saving the most matters to you.

If the rates are close, the snowball usually costs only a little more and the early wins are worth it. If one card is at 29% and the rest are low, the avalanche can save a lot.

What makes the extra appear

The extra money each month is what turns the plan from slow to fast. In the example above:

An extra $100 a month brings the date forward by three months and saves about $250. Places people often find it:

1. Stop new debt first. Put the cards somewhere hard to reach, or cut them up.
2. Cancel one subscription you would not miss.
3. Sell one thing you no longer use and put all of it on the first debt.
4. Raises, refunds and gifts go straight to the debt you are climbing.

How Debt Free helps

Debt Free turns your debts into a mountain range you climb one peak at a time.

• Both methods side by side. See the snowball and avalanche dates, interest and first win for your own debts, then choose.
• A slider for the monthly amount, showing how much sooner you would finish and how much interest you would save.
• This month's payments, with the extra shown on the debt you are climbing, and one tap to put a payment on Today.
• A cairn for every summit. When a debt reaches zero, a stone goes on the cairn and its payment rolls on.
• A reminder the day before a payment is due, and a check-in on the 1st to update balances.

Debt Free is free. General information, not financial advice.