Debt Payoff: Avalanche or Snowball

The story: Ana lists every debt

Ana sits with a list of three debts and compares paying the highest rate first with paying the smallest balance first.

1. Narrator: Ana, a nursing assistant, has three debts and $150 extra each month to put toward them.
2. Ana: A card at 27%, a personal loan at 9% and a car loan at 6%. Where does the extra $150 go?
3. Narrator: Avalanche: extra goes to the highest rate first. Snowball: extra goes to the smallest balance first.
4. Narrator: With these example debts, avalanche saves about $390 in interest. Snowball clears the first debt in month 8 instead of month 24.
5. Ana: Saving more sounds good. But an early win might keep me going.
6. Narrator: Either way, when one debt is gone, its whole payment rolls into the next. That growing amount is the snowball payment.
7. Narrator: One target at a time. Both work best when no new debt piles on.

What you’ll learn

1. Start with a list

   A payoff plan starts with every debt on one list: who it’s owed to, the balance, the interest rate and the minimum payment. Every minimum gets paid on time so nothing falls behind. Then any extra money goes to one target at a time.

2. Avalanche: highest rate first

   The avalanche method sends extra money to the debt with the highest interest rate. It saves the most interest and is often the fastest, because the most expensive debt shrinks first.

3. Snowball: smallest balance first

   The snowball method sends extra money to the smallest balance. It usually costs a bit more interest, but the first debt disappears sooner. Many people find those early wins help them stick with it.

4. The payment that keeps growing

   When a debt is paid off, its whole payment goes to the next target. That growing amount is the snowball payment. Pausing new debt and keeping a small emergency fund stop surprises from undoing the plan.

   Example: once a $1,500 loan with a $60 payment is paid off, that $60 joins the next target’s payment.

Key words

avalanche

paying extra on the highest interest rate first

snowball

paying extra on the smallest balance first

debt-free date

the month your last debt is paid off

snowball payment

a paid-off debt’s payment, added to the next target

Common questions

Which method is better?

Avalanche saves the most money. Snowball gives faster wins. Here’s how many people decide: if motivation is the hard part, snowball; if the rates are far apart, avalanche. Either beats paying minimums only.

What if I can’t pay every minimum?

Calling the lender before a payment is missed often opens up options like a payment plan. The When Money Is Tight lesson in Juggling It All covers who to pay first.

Remember this

One target at a time, then the payment snowballs.

Try it: Race avalanche vs snowball

1. List your debts with balance, rate and payment, or use the example debts.
2. Run them through the Debt Avalanche vs. Snowball calculator.
3. Note the debt-free date and the total interest for each order.

The Debt Avalanche vs. Snowball calculator.