The debt avalanche method and the debt snowball method are two strategies for paying off debt. With the debt avalanche method, you first pay off the high-interest debt. With the debt snowball method, you pay off the smallest debt first.

Each method requires you to list your debts and make minimum payments on all but one. Then, once that debt is paid off, you target another balance, and so on until you have paid off all your debts. Depending on your personal preferences and circumstances, you may find one method to be more suitable for you once you understand the differences.

Key Takeaways:

• The debt avalanche and debt snowball are types of accelerated debt payment plans.
• The debt avalanche method involves making minimum payments on all debt and then using the additional funds to pay off the debt with the highest interest rate.
• The debt snowball method involves making minimum payments on all debts and then paying off the smallest debts first before moving on to larger ones.
• The debt avalanche method may result in paying less interest over time.

Debt Avalanche vs. Debt Snowball:

If you are implementing one of these strategies, try to avoid making new purchases.

Debt Avalanche:

Example of Debt Avalanche:

• $10,000 credit card debt at an annual percentage rate (APR) of 18.99%
• $9,000 auto loan at an interest rate of 3.00%
• $15,000 student loan at an interest rate of 4.50%

In this scenario, the debt avalanche method would have you first pay off your credit card debt because it has the highest interest rate. If you put your extra money toward that debt, you would pay off your remaining debt in 11 months, paying a total of $1,011.60 in interest.

In comparison, the debt snowball method would have you tackle the auto loan first. You would be debt-free in 11 months but would have paid $1,514.97 in interest.

If you have significant amounts of debt, the debt avalanche method of targeting the debt with the highest interest rate may also reduce the time it takes to pay off the debt by a few months.

Pros and Cons of Debt Avalanche:

The debt avalanche approach also assumes a specific and consistent amount of discretionary income that you can apply to your debts. If your daily living expenses increase or emergency expenses arise, you may need to stop using the debt avalanche approach.

Advantages:

• Reduces the total amount of interest you pay
• Reduces the amount of time it takes to get out of debt
• Good for budget-oriented individuals

Disadvantages:

• Requires discipline and commitment
• Requires discretionary income

Debt Snowball:

First, list all the outstanding amounts you owe in ascending order of size. Target the smallest one as the first to pay off, then allocate your extra money to those payments after making all the minimum payments on all your bills.

• $10,000 credit card debt at an annual percentage rate (APR) of 18.99%
• $9,000 auto loan at an interest rate of 3.00%
• $15,000 student loan at an interest rate of 4.50%

The debt snowball method would have you focus on the auto loan first because it owes the least amount of money. You would resolve it in about three months and then tackle the other two. Like with the debt avalanche method, you would be debt-free in approximately 11 months. However, you would have paid $1,514.97 in interest, around $500 more in total.

The advantage of the debt snowball method is that it can help you stay more motivated as you pay off a smaller debt first.

Pros and Cons of Debt Snowball:

The major drawback of the debt snowball method is that it doesn't reduce the overall amount you pay in interest as much as the debt avalanche method.

Advantages:

• Can generate motivation by paying off debts faster

Disadvantages:

• Does not reduce interest as much as the debt avalanche method
• May take longer to become completely debt-free

Which is Better, Debt Snowball, or Debt Avalanche?

Should I Pay Off Big Debts or Small Debts First?

Is It Better to Put Money in Savings or Pay Off Debt?

The Bottom Line: