Debt Avalanche vs Debt Snowball: Which is Better?

The Debt Avalanche Method

The debt avalanche method focuses on minimizing the total interest you pay. Here's how it works:

1. List all your debts from highest to lowest interest rate
2. Make minimum payments on all debts
3. Put any extra money toward the debt with the highest interest rate
4. Once that debt is paid off, move to the next highest rate
5. Repeat until all debts are paid

Example: Debt Avalanche in Action

Let's say you have these debts:

• Credit Card A: $3,000 at 22% APR
• Credit Card B: $5,000 at 18% APR
• Personal Loan: $8,000 at 10% APR
• Car Loan: $12,000 at 6% APR

With the avalanche method, you'd pay off Credit Card A first (22% APR), then Credit Card B (18%), then the personal loan (10%), and finally the car loan (6%).

Pros of Debt Avalanche

• Saves the most money: By tackling high-interest debt first, you minimize total interest paid
• Mathematically optimal: This is the fastest path to debt freedom in terms of total cost
• Lower total payoff time: You'll often be debt-free slightly faster

Cons of Debt Avalanche

• Slow early progress: If your highest-interest debt is also large, it takes longer to see wins
• Requires discipline: Without quick wins, some people lose motivation

The Debt Snowball Method

The debt snowball method focuses on psychological momentum. Popularized by Dave Ramsey, it prioritizes quick wins over interest savings:

1. List all your debts from smallest to largest balance
2. Make minimum payments on all debts
3. Put any extra money toward the smallest debt
4. Once that debt is paid off, move to the next smallest
5. Repeat until all debts are paid

Example: Debt Snowball in Action

Using the same debts:

• Credit Card A: $3,000 at 22% APR
• Credit Card B: $5,000 at 18% APR
• Personal Loan: $8,000 at 10% APR
• Car Loan: $12,000 at 6% APR

With the snowball method, you'd pay off Credit Card A first ($3,000), then Credit Card B ($5,000), then the personal loan ($8,000), and finally the car loan ($12,000). In this example, the order happens to be the same, but often the smallest debt isn't the highest interest.

Pros of Debt Snowball

• Quick wins: Paying off small debts fast builds momentum and motivation
• Psychological boost: Crossing debts off your list feels great
• Higher success rate: Studies show people are more likely to stick with this method
• Simplifies faster: You reduce the number of payments you manage quickly

Cons of Debt Snowball

• Costs more: You'll pay more in total interest
• Mathematically suboptimal: It's not the most efficient path

Real Numbers: How Much Does It Matter?

Let's compare both methods with a realistic example. Say you have $30,000 in total debt and can put $800/month toward payments:

In this example, the avalanche saves $900 and 2 months. But the snowball gives you a win in month 4 instead of month 14. Which matters more to you?

Which Method Should You Choose?

Choose Debt Avalanche If:

• You're motivated by saving money and seeing numbers improve
• You have the discipline to stick with a plan even without quick wins
• Your highest-interest debt isn't dramatically larger than others
• You're comfortable with spreadsheets and tracking interest

Choose Debt Snowball If:

• You need motivation and quick wins to stay on track
• You've tried to pay off debt before and gave up
• You have several small debts you could knock out quickly
• The psychological boost matters more than saving a few hundred dollars

The Hybrid Approach

Can't decide? Try a hybrid approach:

1. Start with snowball: Pay off 1-2 small debts for quick wins and momentum
2. Switch to avalanche: Once you're motivated, focus on high-interest debt

This gives you the psychological boost of early wins while still optimizing for interest savings on the bulk of your debt.

Alternative: Debt Consolidation

If you're struggling with multiple high-interest debts, consider consolidating them into a single lower-interest loan. This can:

• Lower your interest rate (especially if your credit has improved)
• Simplify multiple payments into one
• Reduce your monthly payment

Frequently Asked Questions

Which is better: debt avalanche or debt snowball?

The debt avalanche method saves more money on interest, while the debt snowball provides psychological wins that keep you motivated. If you're disciplined and motivated by math, choose avalanche. If you need quick wins to stay on track, choose snowball.

How much money does the debt avalanche save?

The debt avalanche typically saves 10-20% on interest compared to the snowball method. On $30,000 of debt, this could mean saving $1,000-$3,000 in interest payments.

Can I combine debt avalanche and snowball methods?

Yes! A hybrid approach works well. Start with the snowball to build momentum by paying off 1-2 small debts, then switch to the avalanche to maximize savings on remaining high-interest debt.

What if my highest-interest debt is also my smallest?

If your highest-interest debt is also your smallest, both methods would have you pay it first. In this case, it doesn't matter which method you choose—just start paying it down.