Same Debt, Different Payoff Experience: Snowball vs Avalanche
When you’re researching debt repayment strategies, two stand out: the debt snowball and the debt avalanche. Both work, but they differ.
Basic Scenario
Assume you have the following loan obligations:
Credit Card #1: $5,000 @ 13%, $105/month
Credit Card #2: $7,000 @ 19%, $180/month
Student Loan: $29,000 @ 7%, $350/month
Auto Loan: $15,000 @ 5.50%, $395/month
Debt Snowball: Building Momentum
With the debt snowball, you would focus on paying off the smallest balance first, regardless of interest rate (i.e., the $5,000 credit card). You would initially make minimum payments on everything else and put extra cash toward the smallest debt until it’s repaid.
In this case, let's assume you can afford an additional $75 per month. That means $180 ($105 + $75) would go to credit card #1. Once credit card #1 is paid off, you would apply that $180 to your next-smallest balance (e.g., credit card #2), making a $360 payment ($105 + $180 + $75).
The strength of the snowball approach lies in its psychological and financial advantages. For starters, quick wins matter. Paying off even a small balance builds momentum and, potentially, the confidence to continue aggressively paying down debt.
From a financial perspective, the snowball approach may also save time and money. For example, without the snowball approach (making only the minimum payments), it could take:
68 months to repay credit card #1
61 months to repay credit card #2
42 months to repay the auto loan
114 months to repay the student loan
Given this scenario, the finance charges you would incur by making only the minimum payments could cost you roughly $18,000.
With the snowball approach, again, assuming you can make the additional $75 payment toward loan minimums, credit card #1 is paid off in 34 months, credit card #2 in 44 months, the auto loan in 44 months, and the student loan in 63 months, reducing finance charges to $13,500.
The lower the better.
Who Might Benefit from the Snowball?
The debt snowball might work best for those who initially feel overwhelmed by debt, stuck and discouraged, and unable to get out from under various loans. In other words, when debt starts to feel heavy, and progress feels slow, the snowball approach helps you see results sooner—again, think quick(er) wins.
Debt Avalanche: About Efficiency
With the debt avalanche, you would focus on the debt with the highest interest rate first, regardless of balance size (e.g., credit card #2 at 19%). You would still make minimum payments on everything else, but early on, your extra payment would go to the most expensive debt, not the smallest.
Whether the avalanche approach saves more time than the snowball method depends on the finance terms, but the avalanche method showed its strength by saving an additional $600 in finance charges in this scenario.
Thus, a benefit of the avalanche approach is its financial efficiency. Over time, this approach typically results in lower overall interest payments.
Who Might Benefit from the Avalanche?
The avalanche method could work best for someone who is disciplined, patient, and not easily discouraged by slower progress. With the avalanche approach, you may not eliminate those smaller balances as quickly, but you’re tackling the most costly debt first.
Other Considerations
Cash flow is an important consideration.
If your cash flow is stable, you consistently run a monthly surplus, and you are comfortable waiting for visible progress, the avalanche method may be a better fit. Higher-interest debt often carries higher required payments. When you factor in those payments alongside the extra amount you are directing toward debt each month, the avalanche approach can feel more demanding early on, even though it is more efficient over time.
In contrast, the snowball method may feel more manageable at the start. Paying off a smaller balance first usually requires a lower total payment, which can make the commitment feel lighter and easier to sustain as momentum builds.
This may explain why some people blend the two strategies. They start with the snowball to create early wins and build consistency, then switch to the avalanche once habits are formed and cash flow feels more predictable.
In the End
Both strategies require the same foundation: a clear budget, consistent payments, and avoiding new debt. Remember, the best approach is the one that fits your mindset and budget and is sustainable until your debt is gone.
Disclaimer: Creek & Lyells Financial Literacy Foundation does not provide financial services, nor does it recommend or advise visitors to open accounts or buy or sell securities. All content on this blog is for educational purposes only. While we strive to provide accurate, relevant, and well-vetted information, visitors should consult a licensed financial professional and carefully evaluate the risks of any financial decision before taking action.