Debt Avalanche vs. Debt Snowball: What's the Difference? (2024)

FAQs

Debt Avalanche vs. Debt Snowball: What's the Difference? ›

The avalanche method prioritizes eliminating high-interest debt while the snowball method prioritizes paying off the smallest debts first. Deciding which is your optimal method depends on your goals and what motivates you most.

As you roll the money used from the smallest balance to the next on your list, the amount “snowballs” and gets larger and larger and the rate of the debt that is reduced is accelerated. In contrast, the "avalanche method" focuses on paying the loan with the highest interest rate loans first.

Final answer:

The Debt Snowball method involves paying off debts starting with the smallest balance and then moving on to the next smallest balance.

Prioritizing debt by interest rate.

This repayment strategy, sometimes called the avalanche method, prioritizes your debts from the highest interest rate to the lowest. First, you'll pay off your balance with the highest interest rate, followed by your next-highest interest rate and so on.

With the debt snowball method, you start with your smallest debts and work your way up to the largest ones. While it may not save you as much in interest as other repayment methods, the debt snowball method can keep you motivated to continue paring down your debt.

The avalanche and snowball methods are two debt payoff strategies with the same goal—no debt—but different steps to use along the way. The avalanche method prioritizes eliminating high-interest debt while the snowball method prioritizes paying off the smallest debts first.

The advantage of the debt avalanche method is that it reduces the total interest you pay in the long term. Interest adds to your debts because most lenders use compound interest. The accrual rate depends on the frequency of compounding—the higher the number of compounding periods, the greater the compound interest.

The answer choice that best describes the debt snowball method is c. pay off credit cards in order of balance amount, lowest balance first. The debt snowball method is a debt reduction strategy where you pay off debts in order of the smallest balance to the largest, regardless of interest rate.

With the debt snowball, you pay off your smallest debt first and then apply the payments you were using toward that to pay the next-smallest debt. This strategy allows you to build momentum or “snowball” your payments as you pay off each debt.

Tackling your credit card debt first will also give you a better shot at improving your credit score. Revolving credit is highly influential in calculating your credit utilization rate, which is the second biggest factor (after payment history) that makes up your credit score.

What is the avalanche method of paying debt? ›

The avalanche method is a debt repayment strategy focusing on paying off the account with the highest APR first, moving down from there. The debt avalanche method can take longer than other repayment strategies, but you could save more on interest in the long run.

Usually, the trustee pays them in this order: secured debts first, followed by priority debts, and then unsecured debts.

Cons of debt snowball:

However, this method does come with one major drawback. By prioritizing your debts in order of balance rather than focusing on the debt with the highest interest rate first, you end up paying more in interest over the long term.

Consider the snowball method of paying off debt.

This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off.

The Snowball Method refers to paying the smallest debt first, then the next smallest – and on and on until you are living debt free. Ramsey suggests lining up debts “by balance, smallest to largest,” then paying as much of the smallest debt as possible while making minimum payments on the rest.

Put all your debts in order from smallest to largest; pay minimum payments on all your debts except for the smallest one; attack the smallest debt with intensity until it is paid off; appy the paid off debt's payment to the next debt on the list continuing to "snowball" payments toward each larger debt.

With the debt snowball method, you focus on putting your extra money toward your smallest debt first. The advantage of the debt avalanche method is that it saves more in interest in the long term, while the benefit of the debt snowball method is that it can be more motivating.

Here's how the debt snowball works: Step 1: List your debts from smallest to largest (regardless of interest rate). Step 2: Make minimum payments on all your debts except the smallest debt. Step 3: Throw as much extra money as you can on your smallest debt until it's gone.