In the world full of consumer debt and a need for debt payoff strategies, there are two major strategies: the debt snowball and debt avalanche. These strategies are both great because they will help you pay off your debts much faster than just making the minimum payments alone. But, the major difference between debt snowball vs. avalanche is that one focuses on human nature and keeps us motivated and one saves you more money – it’s all about the order you pay off your debts.
There are lots of online arguments about which one is better… people have strong feelings about this kind of stuff… but the truth is they both will have a positive effect on your debt. I mean if it helps us get out of this debt then we should be all for it!
You can use either of these methods for paying off student loans, credit card debt, doctor’s bills, car notes, your mortgage, you name it, any kind of debt.
What does all this snow have to do with paying off debt? Let’s take a look at debt snowball versus debt avalanche when eliminating debt so you can figure out which works best for you.
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Debt snowball method
Dave Ramsey has made this a really popular debt payoff strategy, and his followers preach the debt snowball hard. The reason being is that debt snowball gives you some early wins that motivate you to keep going. You build momentum by focusing on your smallest debts first, then rolling those payments together to focus on larger balances.
If you haven’t read it Dave Ramsey’s The Total Money Makeover it is an excellent book that will step you through how to setup your finances and budget, using the debt snowball to get out of debt for good.
The debt snowball method aims to start with small wins and build momentum over time. Using this method, you start paying off your debt with the smallest balance first, while paying the minimum on the rest.
Here’s how the debt snowball works:
- Every month you pay the minimum balance on all of your debts.
- You put as much extra as possible towards your debt with the smallest balance.
- Once your smallest debt is paid off, you move onto the next one until all of your debts are paid off.
Let’s say you have three student loans with balances of $14k, $9k and $2k. Using the snowball method, you would:
- Focus on paying off the $2k balance, throwing as much money as possible toward this loan.
- Pay the minimum on your $9k loan.
- Pay the minimum on your $14k loan.
It’s important to stay in good standing with all your loans, but the goal is to prioritize the smallest balance and work up to the higher balances regardless of interest rate. In this case, after paying off the $ 2k loan, you’d then focus on the $9k loan before the $14k loan.
The upside is it helps you see results right away and get a boost of motivation. The major downside is that it often takes longer to eliminate all your debt using debt snowball versus avalanche.
Let’s look at some of the pros and cons of the debt snowball method:
- Starting with the smallest payments first can provide quick wins and you can see it, it feels good.
- It’s a tried-and-true method to pay off debt.
- As you eliminate your smaller balances, you can free up extra funds to focus on the next balance.
- It may take longer to pay off your debt.
- You could pay more in interest over time.
The debt snowball method is a good choice if you’re dealing with some hardcore debt fatigue and need a boost of motivation. If you go this route, know that you’ll probably pay more in interest since you’re focusing on the smallest balance first rather than the interest rate.
The early satisfaction you get from paying off those smaller debts is what drives you through your debt payoff. Paying off debt can feel exhausting, so that positive feedback early on helps you from getting too fatigued.
When debt snowball can work best
If you have many different types of debt, debt snowball works best with paying off smaller amounts. Think about store credit cards, small loans or when you’ve borrowed money from friends and family.
In one Harvard Business Review study, participants that focus on the smallest balance first admit to feeling like they’re progressing more compared with other methods.
Debt avalanche method
The debt avalanche is about math and what is going to save you the most money over time.
Here’s how the debt avalanche works:
- Every month you pay the minimum balance on all of your debts.
- You put as much extra as possible towards your debt with the highest interest rate.
- Once your debt with the highest interest rate is paid off, you move onto the next one until all of your debts are paid off.
The debt avalanche method requires you pay down the loan with the highest interest rate first while paying the minimum balance on the rest of your loans.
So if you have loans at 7.9%, 6.5% and 4.0%, you would work on eliminating your loan with the 7.9% interest rate first, regardless of the balance. Once you’ve paid it off, you’ll then focus on the 6.5% loan before the 4.0% loan.
Here are the pros and a con of using the debt avalanche method.
- You save more on interest over the life of the loan.
- You’ll pay the loans off faster.
- You may not see wins as fast as you would with debt snowball, which for some can be harder to stay motivated.
When debt avalanche works best
If you have many different kinds of the same debt, such as student loans, debt avalanche might be best for you. Having many different student loans with varying interest rates can be hard to constantly track. Paying the minimum balance every month may not be making a sizeable dent in your payoff plan.
Instead, continue making payments on all your student loans while paying as much as possible to the loan with the highest interest. Then devote that extra cash to the loan with the next-highest interest rate.
Pros and cons of debt snowball vs. avalanche
You’ve probably already gathered what I’m going to say here, but I want to give you a few key takeaways that will help you understand the difference in the snowball vs. avalanche debt payoff strategies.
- Debt snowball empowers you with some small early victories. You see progress early on, especially if you have some pretty small debts.
- The debt snowball will cost you more in interest charges over the course of your debt payoff.
- The debt avalanche is better math – by focusing on loans with larger interest rates, you are saving money.
- If you’re using the debt avalanche, it can be hard to sustain your motivation.
Which one is best?
When looking at debt snowball versus avalanche, both methods will get you to the same destination, a debt-free life!
Choosing the right strategy for you depends on your goals and how you’re motivated. Determine the type of saver and spender you are with some questions:
- Do small wins help you to keep going?
- Do you have the patience to pay off higher-interest debt to save more in the long run?
Knowing how much you could save can influence your answer. You can use an online calculator like this one from MagnifyMoney, that compares both methods to determine how much you will pay back and how long it will take to get out of debt.
Depending on your interest rates and balances, you could stand to save money and cut off some time from your repayment period by using the debt avalanche method.
But if you have a hard time paying off debt or won’t save a significant chunk of dough, debt snowball may be a good option for you.
Also, you don’t have to choose between one or the other — sometimes a combination of the methods is most effective.
Staying motivated is most important, because the worst result is giving up on you plan or sliding back into debt.
There are no right or wrong answers when it comes to debt repayment. Whether you choose debt snowball, debt avalanche, combine them somehow or choose something completely unique, the key is that you’re consistent and that you have a plan to get out of debt. Like all things personal finance, it’s PERSONAL.
The Bottom Line on Debt Snowball vs. Debt Avalanche
If you are serious about tackling your debt, then pick which method is best for your own situation and personality. The best method is the one you can stick to. If you are a person that needs more motivation to pay off debt, then stick with the debt snowball method.
There are no right or wrong answers when it comes to debt repayment. Whether you choose debt snowball, debt avalanche, some hybrid method or something completely unique, the key is that you’re consistent and that you have a plan to get out of debt.
Either way, snowball or avalanche, you are accelerating your debt payoff. That’s an awesome thing, and that means you can start focusing on other important financial goals. Like buying a first house, retirement or building up your Passive Income!
Let us know what you think in the comments below. Do you use either of these strategies? I personally started with the debt snowball to knockout the smaller credit cards. Then I went after everything else with high interest (High to Low) after I’d built the habit over 4 -6 months of paying everything extra I had toward debt pay down.
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