Debt Snowball vs. Debt Avalanche: Two Ways to Get Out of Debt

Whether it’s student loans, credit cards, a mortgage, or some other kind of financing, most of us are looking for how to get out of debt. While there are a few different approaches to getting rid of debt, this article will focus on two methods in particular: debt snowball and debt avalanche.

Debt snowball

How It Works: With this approach, you pay off your various debts in order from the smallest amount to the largest amount. Think of it like the snowball that starts rolling downhill, gathering speed and snow…until it crushes your debt and wipes it out completely.

It’s important to note that you actually disregard your different interest rates with the debt snowball method. To use a concrete example, say you have a $6,000 credit card balance at 22%, another $2,000 in credit card balance at 16%, and then a $500 medical bill that won’t start charging interest for another few months. You’d put what extra money you have towards that medical bill, then, once your medical expense is paid, work on the $2,000 credit card bill.

If you are following this approach, you’ll want to keep an eye on any promotional rates that end or a change in rates that might reorder your debt payment priorities.

Why You’d Use It: It seems counterintuitive to think about debt without considering the interest that you’re paying. But as you might guess from the rolling snowball imagery, this method is all about momentum. It can be helpful psychologically to start small and work your way upwards, because there is a sense of progress. You feel like you’re racking up small wins along the way. You realize that you can pay off your debts and feel more confident about your finances.

Another benefit is that once you are finished with that debt payment, you can put those dollars towards your other debts.

By starting with your smallest debt, you get the satisfaction of clearing it from your ledger, so to speak. It’s one less debt, one less payment to worry about. Then you move on to the next smallest debt and keep that snowball rolling.

Debt avalanche

How It Works: The avalanche imagery might be a little intense, but the idea is simple: focus on paying off your debt with the highest interest rate first. Of course, you need to keep making the minimum payments on your other debts to avoid becoming delinquent. But your priority is to chip away at what is costing you the most each month in interest. Once that debt is gone, you move on to the next highest interest rate and continue down the line.

Why You’d Use It: The short answer? This strategy saves you the most money.

You take the avalanche approach to make dents in the debts that are doing the most damage to your wallet. You save money in the long run by doing away with the debts that are charging you the highest interest.

However, it may not feel like you’re making much headway. Taking the example above, it would take much longer to pay off your $6,000 credit card balance than that $500 medical bill. For that duration, you’ll still need to cover all three debt payments, and it might feel like you’re hardly making a dent.

If you’re thinking of going with the avalanche method, it helps to be a patient person who can methodically work through your finances and keep your eye on the prize.

Which strategy is right for me?

The choice between snowball and avalanche depends on which is a sustainable strategy for you.

If you feel like you’d lose steam slowly chipping away at your highest interest debt, then you should go the snowball route. Although there is theoretically a greater financial benefit to the debt avalanche, that doesn’t work if you give up partway through. The debt snowball approach may be more likely to keep you on track, and that’s better than nothing.

The snowball avalanche could be right for you if you’re looking to make the biggest difference in your finances and you’re able to stay disciplined and consistent in your approach.

No matter which direction you go in, there are a couple of additional items that can help you successfully following through.

• Make a budget and stick to it. This will help you know how much money you can put towards paying off your debt, and if you might have some room to increase your debt payments.
• Track your progress. This is especially useful with the avalanche debt-payoff strategy but can also help with the snowball payment approach.
• Look for “extra” money to increase your debt payments. Apparently, this is known as the “debt snowflake” method. When you come across unexpected income—perhaps a year-end bonus, tax refund, your piggy bank, your side hustle, or that $20 bill you left in pants pocket—you can put that newfound money towards either the snowball or avalanche strategy and get a little closer to your debt-free goals.