Trying to pay off your debt can seem overwhelming, but there are strategies that can help. There are generally two different approaches to take to help pay down your debt, and each method has its pros and cons. There is no right or wrong answer when it comes to which method is best because every person’s debt situation differs. Sometimes it might even be a combination of both methods. It is up to you to determine what motivates you and which process may be the best fit for your situation.
What to know about the snowball vs. the avalanche method
The "snowball method," simply put, means paying off the smallest of all your loans as quickly as possible. Once that debt is paid, you take the money you were putting toward that payment and roll it onto the next-smallest debt owed. Ideally, this process would continue until all accounts are paid off. 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. Similar to the "snowball method," when the higher-interest debt is paid off, you put that money toward the account with the next highest interest rate and so on, until you are done. By focusing on the loans that are the most expensive to carry in the long run, you should pay less over time as the higher interest loans are addressed first.
You may save some money with the "avalanche method," but if the principal is large, the time it may take to pay off debt with the highest interest can be discouraging and make it difficult to stick to the plan. Paying off small debts quickly can feel rewarding. If you prefer to see progress quickly and work your way up, then the "snowball method" may be a better fit for your debt management goals.
Putting the different methods to work
To apply the "snowball method" or the "avalanche method" to your financial situation, get organized by following these steps:
| "Snowball Method" | "Avalanche Method" |
1.
| Make a list. Organize any payment information, total amount owed, minimum monthly payments and due dates. | Make a list. Organize any payment information, total amount owed, minimum monthly payments and due dates. |
2.
| Sort them out. Arrange your list of accounts from smallest to largest dollar amount owed.
| Sort them out. Arrange your list of accounts from the highest interest rate to the lowest interest rate on each bill.
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3.
| Budget beyond the minimum. Determine how much extra you can afford to put toward the monthly minimum payment for your smallest debt, after paying the minimum payments on all of your other outstanding debts. Remember, if you do not have enough for even the minimum on each of your debts, it can hurt your credit score.
| Budget beyond the minimum. Determine how much extra you can afford to put toward the monthly minimum payment for your highest interest rate account, after paying the minimum payments on all of your other outstanding debts. Remember, if you do not have enough for even the minimum on each of your debts, it can hurt your credit score.
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4.
| Roll over payments as you make progress: When you’ve paid off the smallest debt, take the money previously used — the monthly payment and the little extra you budgeted — and put it toward the next-smallest debt.
| Roll over payments as you make progress: When you’ve paid off the account with the highest interest rate, take the money previously used — the monthly payment and the little extra you budgeted — and put it toward the next-highest interest rate account debt.
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Perfecting your debt pay down strategy
- Build an emergency fund: Have a safety net in place before you begin a debt pay down method. While it’s good to want to become debt-free, having funds to rely on in case of situations like an unexpected medical bill or car repair should be a priority.
- Stay up-to-date on all of your current bills: Don’t start either the avalanche or the snowball method if you are late on payments, as this will only complicate your debt situation. Contact your lenders to discuss possible options to prevent late payments such as adjusting the payment due date.
- Track your spending: Be careful to not charge up additional debts while you are working to pay down your debt. Track your spending to ensure you stick to your budget. Take note on how your credit score changes. Paying down your debts may help improve your score over time.
As you work on your chosen debt pay down strategy, remember to stay focused on your end goal.
- With the "snowball method," you will enjoy those little wins and use them as motivation to keep going.
- If you are analytical and patient, the "avalanche method" may be the method for you. With the "avalanche method," it may take longer to roll over to your next account but if you have larger balances with higher interest rates and you stick to the plan, it should save you in the long run.
Either way, it will take time, but the important thing to remember is to commit to a goal and stay with it. By staying focused on your end goal, and keeping control over not adding unnecessary new debts, your existing debts should slowly melt away.
FAQs
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.
Should I use snowball or avalanche method? ›
If you're motivated by saving as much money as possible down to the last penny, you'll probably prefer the “avalanche” method. On the other hand, if getting a quick win right off the bat encourages you to keep moving forward, then the “snowball” method will likely motivate you the most.
What is the difference between debt avalanche and debt snowball answers? ›
The debt avalanche method involves making minimum payments on all debt and using any extra funds to pay off the debt with the highest interest rate. The debt snowball method involves making minimum payments on all debt, then paying off the smallest debts before moving on to bigger ones.
What are some disadvantages of the snowball method of eliminating debt? ›
Con: Ignores interest costs
Opponents of the debt snowball method argue that it fails to consider the amount of money individuals save by paying higher-interest accounts off first. To them, it makes sense mathematically to pay off higher-interest accounts first so they don't continue accruing interest.
What should you do in the avalanche approach to reducing 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.
How to pay off $15,000 in credit card debt? ›
How to Pay Off $15,000 in Credit Card Debt
- Create a Budget. ...
- Debt Management Program. ...
- DIY (Do It Yourself) Payment Plans. ...
- Debt Consolidation Loan. ...
- Consider a Balance Transfer. ...
- Debt Settlement. ...
- Lifestyle Changes to Pay Off Credit Card Debt. ...
- Consider Professional Debt Relief Help.
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.
How can the snowball method get you out of debt? ›
The "snowball method," simply put, means paying off the smallest of all your loans as quickly as possible. Once that debt is paid, you take the money you were putting toward that payment and roll it onto the next-smallest debt owed. Ideally, this process would continue until all accounts are paid off.
How long should it take to pay off debt? ›
A good rule of thumb is to try to pay off any card balance in 36 months, but you might want to see what it will take to pay off the balance in shorter or longer increments of time. Your actual rate, payment, and costs could be higher. Get an official Estimate before choosing a loan.
What are the pros of the debt snowball method? ›
the biggest pro of the snowball method is that you get to experience several wins throughout your journey, as we focus on just paying off those smallest balances first, focusing on debt with small balances versus spreading your payments evenly across all that you have.
The snowball effect does not allow for the construction of “representative” samples, even if the notion of representativeness in qualitative research does not make sense (we refer you to our article on saturation and our qualitative sample size calculator).
Which debt would you be focusing on if you are using the debt snowball? ›
The way the snowball debt strategy works is actually quite simple. Start by ranking your debts in order by the amount you owe, from smallest to largest. Next, put all the money you've budgeted for debt repayment toward the smallest of those debts and only pay the minimum payment on your others.
Is snowball or avalanche better? ›
Paying off smaller balances first (debt snowball method) gives you motivation to keep going. Paying off higher-interest debt first (debt avalanche method) can save you more money. Paying off debt is good for your financial and mental health. What matters most is that you choose a method and stick with it.
What is the key to successfully using the snowball technique to eliminate debt? ›
Start by paying off the debt with the highest interest rate until it's eliminated, then move on to the one with the next highest interest rate, pay it off and repeat until all debts are eliminated. Find a solution that offers a lower interest rate and monthly payments that you can afford.
What are 2 ways to reduce the debt? ›
The two most popular strategies are to pay off balances with the highest interest rates first or to pay off the lowest balances first. The former will save you more money over the long run, but the latter can help you keep momentum and see progress.
When should you use snowball? ›
The "snowball method," simply put, means paying off the smallest of all your loans as quickly as possible. Once that debt is paid, you take the money you were putting toward that payment and roll it onto the next-smallest debt owed. Ideally, this process would continue until all accounts are paid off.
What is the fastest way to pay off credit card debt? ›
Here are four of the fastest ways to pay off $10,000 in credit card debt:
- Take advantage of credit card debt forgiveness.
- Consider credit card debt consolidation.
- Use your home equity.
- Ask your lenders about financial hardship programs.
The two most popular are:
- Debt snowball method: Prioritize the smallest debt, putting all extra money there while making the minimum payment on your other debts.
- Debt avalanche method: Prioritize the debt with the highest interest rate, putting all extra money there while making the minimum payment on your other debts.
The two most popular strategies are to pay off balances with the highest interest rates first or to pay off the lowest balances first. The former will save you more money over the long run, but the latter can help you keep momentum and see progress.
