Debt Snowball vs. Debt Avalanche: Which Strategy Works Best?

If you are trying to figure out the best way to pay down debt on your own, you should consider which method works best for you – the debt snowball or debt avalanche.

Key Points: 

• The debt snowball method focuses on smaller debt first, potentially providing encouragement to continue your debt relief journey.
• The debt avalanche method is generally faster and cheaper but can be discouraging when the first payoff takes so long.
• The best option is the one that you can stick to until you are debt-free.

The most common type of debt is credit card debt. The average credit card debt in the US is around $6,000 and the average interest rate is an impressive 21%. With so many cards on the market, from simple ones to balance transfer credit cards, travel credit cards, rewards credit cards, and more, you may have accumulated more debt than planned.

Credit card payoff, as with any debt repayment, may boost your credit score over time. There are different ways to pay off your credit card balance. The main goal is to pay more than the minimum payment, as that only covers interest charges on your credit card debt. To reduce the principal, you need to pay more than the minimum monthly payment. 

Of course, on top of credit cards, your total debt can also include personal loan debt, student loans, and even debt consolidation loans. If you are trying to figure out the best way to pay down debt on your own, you should consider which method works best for you — the debt snowball or debt avalanche. 

Before you use either method, you need to create a budget including the minimum payments for all of your current debts. The debt snowball and avalanche methods will help you decide how to use any extra income you have after you make the minimum payments.

Once you have your budget ready, you can decide which method is best for you to get out of debt. Find below all you need to know about the debt avalanche vs. the snowball method and their pros and cons.

Debt Snowball Method

The debt snowball method has you start paying off the smallest debt and work your way up to paying off your largest debt, regardless of interest rates. Since you will achieve payoff much faster with this method, you may be more likely to continue paying off your debts. Using the snowball approach you can enjoy quick wins, giving you a psychological boost as you see debts disappearing more quickly.

• There is less time until you successfully pay off a debt, which could encourage you to continue paying off your larger debts.
• Paying off a smaller debt frees up funds to use toward paying off your larger debts. You may thus be able to pay off debt using increasingly larger payments each month.

Cons of the Debt Snowball Method

• It may take more time to pay off your total debt, costing you more in interest fees.
• Your larger debts will continue to increase while you are paying off the smaller debts.

Example of the debt snowball method

How It Works:

• List your debts, ordered by balance from smallest to largest.
• Make minimum monthly payments on all debts.
• Allocate any extra money towards the smallest balance first.
• Once the smallest debt is paid off, direct the extra payments to the next smallest debt.
• Continue this process until all debts are cleared.

Imagine you have three types of debt:

• Credit Card A: $5,000 balance at 20% interest
• Credit Card B: $2,000 balance at 15% interest
• Student Loans: $10,000 balance at 5% interest

With the debt snowball method, you would focus on Credit Card B and make minimum payments on Credit Card A and the student loan while putting any extra funds toward Credit Card B. 

Once Credit Card B is paid off, you would then move on to Credit Card A, and finally, to the student loan. This method helps build momentum and motivation as you see debts being eliminated more quickly.

If you think this is the best credit repair option for you but are concerned about your debt’s high interest rates, you could consider a debt consolidation loan. Keep in mind that this option will only benefit you if you still have a good credit score and meet other criteria to qualify for a low enough interest rate to make it worthwhile.

Debt Avalanche Method

The debt avalanche method focuses on paying off debt with the highest interest rates first and then working your way through debt with a lower interest rate. With this method, you will generally save money by paying less interest. However, using it can also be discouraging since it could take a bit of time before you have your first payoff. 

The rationale behind this approach is that by eliminating the debt with the highest  interest rate first, you'll save more money in interest payments over time and accelerate your journey to becoming debt-free.

Pros of the Debt Avalanche Method

• You generally save more money by lowering the overall interest you will need to pay.
• The debt avalanche method may result in lower payments over time, once you pay off the bigger debt.

Cons of the Debt Avalanche Method

• If you use the debt avalanche method, it may take longer to achieve your first total payoff since you may be tackling the larger amount of debt first.
• You may become frustrated with this longer-term strategy and give up on paying off your debt before you’ve achieved your goal.

Example of the debt avalanche method

How It Works:

• List all your debts, including the loan balance, monthly minimum payment, and interest rate for each, ordered by highest to lowest interest rate.
• Continue to make just the minimum payments on all debts.
• Allocate any extra money towards the debt with the highest interest rate.
• Once your highest-interest debt is paid off, redirect the extra payments to the next highest-interest-rate debt.
• Repeat this process until all debts are paid off.

Imagine you have three types of debt, the same as in the previous example.

• Credit Card A: $5,000 balance at 20% interest
• Credit Card B: $2,000 balance at 15% interest
• Student Loan: $10,000 balance at 5% interest

With the debt avalanche method, you would focus on Credit Card A first because it has the highest interest rate. You make minimum payments on Credit Card B and the student loan while putting any extra funds towards Credit Card A. 

Once Credit Card A is paid off, you would then direct your extra payments to Credit Card B, and finally, to the student loan. This method saves you money on credit card interest payments in the long run.

Which debt relief strategy is best for you?

The best debt relief strategy comes down to personal preference and what you can stick to. The difference in payoff time and cost between the debt avalanche and debt snowball methods doesn’t matter if you can’t follow through on the debt relief strategy until you are debt-free.

You may benefit from the debt snowball method if you:

• Have tried to pay down debt before on your own but failed.
• Need encouragement to continue paying off your debt until you are debt-free.

You may benefit more from the debt avalanche method if you:

• Can stick to the strategy without the need for little wins.
• Want to pay off your debt as quickly as possible

If you still can’t decide between the debt avalanche and debt snowfall methods, plot out your debt payoff timelines for both to see which one will be most beneficial to you and your financial situation. You can even combine the two if that will help you pay off your debt successfully. 

Managing debt may impact your credit score, which is why you need to focus on doing it effectively. If you find that paying down debt on your own is not working out, give a ClearOne Advantage Certified Debt Specialist a call at 866-481-1597 to discuss your best debt relief options and get a free savings estimate.