Debt avalanche vs. debt snowball: Which method is best? | finder.com
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Avalanche vs. snowball: Which is the best way to pay off debt?

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See which method of tackling your debt can help you save time and money

It’s much simpler to watch your debt grow then see it shrink as you get more financial responsibilities — the key is keeping it to a reasonable amount. Managing debt isn’t the easiest situation for anybody who has a credit card, student loans, personal loans or any other line of credit with an outstanding balance.

However, there are two useful debt elimination plans — debt avalanche method and debt snowball method. Which strategy you choose for paying off your personal debt comes down to personal preference.

Avalanche method

When paying off debts using the debt avalanche method — also called the debt-stacking method — you pay off your debts with the highest interest rates first.

The reason you’d pay off your debts in this order is because when you tackle the debt with the highest interest rate, you’ll see savings in the form of unpaid interest. And with those savings, you could put more money towards the next debt with the highest interest rate, and so on until you’re debt free.

How the debt avalanche method works

Say you owe:

  • $500 on a payday loan with a 300% interest rate
  • $200 on a credit card with a 25% interest rate
  • $10,000 in student loans at a 7% interest rate

Here, you’d start with your payday loan because you’re paying an extremely high interest rate. Once you’ve satisfied that debt, you’d move to your credit card debt and finally your student debts.

With the payday loan as your focus debt, you should pay as much as you can towards repayments and only make the minimum payment on your other debts. By focusing on the payday loan, you’re effectively minimizing the amount you’d be paying towards interest which leads to savings.

When the payday loan is paid off, move on to your credit card debt. Because this is now your focus debt and you’ve paid off your payday loan, redirect your payday loan repayment amount, and anything extra you can, towards this debt until it’s satisfied.

On the other end of the spectrum, your student loans get stretched over years and typically come with lower interest rates which makes them a better option to pay last.

Pros and cons of the avalanche method

  • Minimize money spent on interest
  • Debts will be paid faster
  • Can be hard to stick to the plan
  • Takes a long time to pay off first debt

Get help from debt relief professionals

Snowball method

With the snowball method, you’d pay off your smallest debts first. Once you pay the littlest debt, you use the money that you would have been paying on your smallest debt and apply it to the next in line. This way each time you pay off a debt — moving up your list from smallest to largest — you’ll compile a greater repayment amount to go towards the next debt in line.

The key to this method is that once you get the ball rolling and start seeing your minimal debts disappear, you’ll be able to move on and tackle the larger ones easier.

How the debt snowball method works

Let’s say we have the same situation from before:

  • $500 on a payday loan with a 300% interest rate
  • $200 on a credit card with a 25% interest rate
  • $10,000 in student loans at a 7% interest rate

You’d pay off your credit card first, then your payday loan and then your student debt — and here’s the reason why.

So you’d continue to make the minimal payments on your other debts, but if you can scrap together an extra $50 or $100 a month to pay towards the balance of your credit card, plus the minimal payment, that debt would be eliminated in anywhere from two to four months.

Next, you’d focus on your payday loan debt. So if you we’re originally making minimum payments of, let’s say, $125, you’d add on the extra money you were paying towards your credit card and use it to settle your payday loan debt.

After that, you’d take all of the money that you we’re paying towards previous debts and hurl them in the direction of your student loans.

Pros and cons of the snowball method

  • Paying off the first debt can get you motivated
  • Use the extra money from paid debts to tackle others
  • May take longer than the avalanche method
  • Potential to pay more interest in the long run

Consider a debt consolidation loan

Rates last updated November 21st, 2018

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Bottom line

There’s no “best” — especially when it comes to climbing out from under debt. You’ll first want to figure out what might motivate you more: Seeing quick wins as you pay off accounts with the snowball method or calculating how much you’ve saved on unnecessary interest with the avalanche method.

In the end, your best strategy might be a combination of the two strategies. Many of us are motivated by seeing results, saving money and feeling good about it. And there’s no reason you can’t pick and choose to find a happy medium that works for you and your personal bottom line.

Our guide to to debt

Jonathan Brodsky

Jon Brodsky is finder.com’s US country manager, leading the company’s growth across international money transfers, personal loans, credit cards and shopping comparisons. Jon brings to his role at finder.com a background in private equity plus extensive digital experience. Most recently, he was senior vice president, digital at Chicken Soup for the Soul, where he was responsible for product changes that helped grow the reach of monthly content from about 300,000 people to 1 billion.

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