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Debt Avalanche Method vs. Debt Snowball: What’s the Difference?

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Paying off debts can feel impossible, especially if you’re paying minimum amounts each month. If you have extra money left over after you pay your bills, and you want to knock off debt at an accelerated rate, then you might be interested in a repayment strategy called the debt avalanche method.

By aggressively targeting your debt according to the highest interest rate, you may soon cut down on your debt while saving money on interest. Here’s what you should know:

What is the debt avalanche method? The basics

The debt avalanche method, also referred to as “debt stacking,” is a popular repayment strategy. It involves putting extra money toward your outstanding debt with the highest interest rate as you make the minimum payment on your other debts.

Once you’ve paid off the targeted debt, you’ll move on to the second-highest APR and so on until all of your debts are paid off. If two of your debts have the same APR, you should prioritize the one with the higher balance.

How the debt avalanche method works

If you have several debts, creating a debt avalanche worksheet can keep you organized as you repay debt.

  1. List out all your debts in order of the highest APR rates. If more than one debt has the same APR, list those debts in order of the highest amounts.
  2. Next, write down the monthly minimum payments for each debt that you owe.
  3. In the next column, write out your current payments. If you’re just paying the minimums due, these will be the same as your minimum payments column.
  4. Following that, document the balance that is owed on that credit.
  5. In the final column, list out each debtor’s interest rates and be sure to organize your list in order of highest to lowest interest rates.

Here’s an example of a debt avalanche method worksheet:

Type of Debt Minimum Payment Current Payment Balance Interest Rate
Credit Card No. 1 $100 $100 $2,000 22%
Credit Card No. 2 $139 $139 $4,000 15%
Personal Loan $50 $50 $1,000 11.5%
Car Loan $365 $365 $25,000 6.5%

In the above example, it would take you 86 months to pay off your debt if you only made the minimum monthly payments.

However, let’s say you have an extra $250 to put toward your debt each month. Using the debt avalanche method, you’d begin by repaying credit card No. 1, followed by credit card No. 2, then the personal loan and finally the car loan. If you were to stick to this plan and pay off your debt using the debt avalanche method, it would take you just 40 months to get out of debt — or about half the time.

Pros and cons of the debt avalanche method

A debt avalanche can go a long way toward shaving interest costs, so financial experts generally consider it to be the most financially sound way of paying off debts.

However, it’s possible that the debt with the highest APR is also the debt with the highest balance, which means you could lose motivation spending months or even years chipping away at the same balance.

Here’s a quick look at what to consider before taking on this payoff strategy:

Debt Avalanche Method
Pros Cons
  • Because you pay off higher interest rate debts first, you save money on interest over time.
  • You will be out of debt more quickly than if you were to prioritize paying off debts according to balance.
  • You could lose motivation if your highest APR debt is also your biggest balance since it may take a long time to pay off.
  • The debt avalanche requires more discipline than other debt repayment strategies, like the debt snowball.

Debt snowball method vs. debt avalanche method

Wondering what’s better for you — a debt snowball versus a debt avalanche? Here’s what you need to know if you’re choosing between the two:

    • The debt snowball method is arguably more popular and involves paying off debts from smallest balance to largest balance without taking APR into consideration. Because you start by paying off debts with the smallest balance, you often knock out entire balances more quickly than you would with the debt avalanche method.
    • For most people, a debt snowball works best when they have a steady amount of extra cash to pay off debt. That’s because this repayment method assumes that as soon as one debt is paid off, you’ll take the minimum that you would have paid on that debt and apply to the debt with the next smallest balance — in effect “snowballing” the amount you owe.
    • Many people like the debt snowball method because of the motivation that comes from paying off a debt once and for all — often in as little as a few months. While the debt avalanche method will help you save more money on interest and pay off your overall debt sooner, research has shown people tend to be more successful with the debt snowball method because of the psychological boost that comes from eliminating an entire balance.
Debt avalanche method Debt snowball method
Pay off debts in order from highest to lowest interest rates Pay off debts in order from smallest to largest balances
May save you more money in the long run since you would pay less interest May cost you more on interest since you’re focused on balances rather than rates
Can dampen motivation since it may take longer to pay off balances Can inspire motivation as you see the loans with smaller balances paid off

Choosing a repayment method that is right for you

When it comes to choosing a debt repayment method, it’s more important to pick the strategy you know you’ll stick with. Go for the debt avalanche method if you know you’re disciplined, as it makes more sense financially. If you think you’ll struggle staying motivated with the debt avalanche method and know you’ll benefit from the small “wins” associated with clearing entire balances, go for the debt snowball method.

What matters most isn’t the strategy you choose, but rather your commitment to sticking to a repayment plan for most likely months, if not years. Both the snowball and avalanche method are known to help pay debt. You’ll become debt-free with both approaches — and that’s the most important thing.


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