How to Use a Debt Snowball vs. Debt Avalanche Method

Feeling overwhelmed by debt? You’re not alone. Many people struggle to manage their finances, and getting out of debt can seem like a daunting task. But there are several strategies you can use, and two of the most popular are the Debt Snowball and the Debt Avalanche methods. Let’s break down how they work and which one might be right for you.

Understanding the Core Concepts

Both methods focus on systematically paying down your debt. However, they differ significantly in how they prioritize which debts to tackle.

The Debt Snowball Method: This method prioritizes paying off your smallest debts first, regardless of their interest rates. The psychological boost of eliminating a debt quickly can be a powerful motivator.
The Debt Avalanche Method: This method prioritizes paying off your debts with the highest interest rates first. This approach saves you the most money on interest in the long run.

The Debt Snowball Method: Baby Steps to Victory

List Your Debts: Start by creating a list of all your debts, including balances, interest rates, and minimum payments.
Order by Size: Arrange your debts from smallest balance to largest balance.
Attack the Smallest: Focus all your extra payments on the debt with the smallest balance. Make minimum payments on all other debts.
Roll Over: Once the smallest debt is paid off, “roll over” the payment you were making on that debt into the payment for the next smallest debt.
Repeat: Continue this process until all your debts are eliminated.

Example (Debt Snowball):

Let’s say you have these debts:

Credit Card A: $500 balance, 18% interest, minimum payment$ 25
Student Loan B: $3,000 balance, 6% interest, minimum payment$ 50
Car Loan C: $8,000 balance, 4% interest, minimum payment$ 150

You’d attack Credit Card A first, even though it has the highest interest rate. Once it's gone, you'd use the $25 (and potentially additional payments) to tackle the next smallest debt (Student Loan B).

The Debt Avalanche Method: Maximize Savings

List Your Debts: Similar to the snowball method, list all your debts with balances and interest rates.
Order by Interest Rate: Arrange your debts from highest interest rate to lowest interest rate.
Attack the Highest: Make minimum payments on all debts except the one with the highest interest rate. Put all extra payments towards that debt.
Repeat: Once the highest interest debt is eliminated, roll over the payment into the next highest interest debt.

Example (Debt Avalanche):

Using the same debt examples above, you’d focus on Credit Card A first, regardless of its small balance.

Here’s a table summarizing the key differences:

Feature	Debt Snowball	Debt Avalanche
Prioritization	Smallest Balance	Highest Interest Rate
Motivation	Psychological Boost	Cost Savings
Potential Savings	Less	More
Ease of Use	Generally Easier	Requires More Discipline

Which Method is Right for You?

Choose the Debt Snowball if: You need a psychological boost to stay motivated. It’s great if you’re easily discouraged and need to see quick wins.
Choose the Debt Avalanche if: You're mathematically inclined and want to save the most money on interest. You’re comfortable with a more disciplined approach.

Resources:

Ultimately, the best debt repayment method is the one you’ll stick with. Consider your personality and financial goals when making your decision. Good luck!