Debt Snowball vs. Debt Avalanche: Which is Best for Me?

Making decisions is a part of life.

Some decisions are tough… some are simple.

Some are made spontaneously… while others require a great deal of thought.

Common decisions we all face include:

How to pay off our debt.

We’ve all been there.

Debt, by definition, is “the state of owing money”.

Even if you have a credit card that you pay in full every month, you are in debt for that month.

Mortgages are debt.

Car payments are debt.

Debt is debt.

Maybe you’re in good standing, but it’s still there.

We can’t escape it… well, unless you pay cash upfront for everything. 

And if you do that… well, then you have my congratulations and permission to stop reading now!

Seriously, stop.

But if you’re like most of us, debt is a part of your life.

And how you go about paying it off will dictate your lifestyle.

Enter “Debt Snowball vs. Debt Avalanche”.

In this article, I will:

1. Guide you through getting started
2. Explain the difference between these repayment methods
3. Provide examples of how to apply them to your financial situation
4. Ultimately help you decide which method is best for you

Debt Repayment: Where do I begin?

Before we get into the specifics of debt snowball vs. debt avalanche… you will need to review the total amount of monthly income you have available to pay down any debts.

This amount should exclude any money that you’ve allocated for living expenses, such as:

• Mortgage
• Food
• Childcare
• School
• Transportation (gas, bus or train fair, etc…)

Now…

Once all of your living expenses are taken care of, how much do you have left each month?

This amount is what you should be drawing from to pay down your debt…

I like to call it the “free cash” figure. 

Here’s an example:

7500.00	total net household monthly income
– 5300.00	total monthly living expenses
2200.00	your free cash figure

Ok.

Now that we’ve established your debt repayment allowance, we can get down to business.

What is Debt Snowball?

Debt Snowball is a term coined by Dave Ramsey, the man behind the cash envelope budgeting system. 

It is a debt repayment strategy.

With this method, you choose to pay off your accounts starting with the smallest balances first… while paying the minimum payment on larger debts.

Once the smallest debt is paid in full, you would proceed to the next slightly larger “small debt” above that…

And so on and so forth, gradually proceeding to the larger debts last.

Payments usually apply to minimum payments due, except for the first (smallest) debt.

The interest rate is not a factor.

Sound confusing?

It can be.

Don’t worry. 

Take a deep breath and start with listing out all of your non-mortgage/rent debts. 

1. Start with the debt carrying the smallest balance, working up to the largest
2. If two debts have similar balances, the one with the higher interest rate goes first.

Then:

1. Decide to pay the minimum balance on each debt.
2. Determine how much extra can be applied towards the smallest debt.
3. Pay the minimum payment, plus any extra money you could muster, on the smallest debt until it is paid off. 
4. Once a debt is paid in full, add the old minimum payment (plus any extra amount available) from the first debt to the minimum payment on the second smallest debt, and apply the new sum to repaying the second smallest debt.
5. Repeat until all debts are paid in full.

It’s not all that difficult, but I’m a visual person.

So here’s a graphic example of the debt snowball repayment method:

Debt	Total Balance Due	Minimum Payment	Adjusted Payment
Amazon Visa	(225.00)	(15.00)	* Assume this is paid off
American Express	6,500.00	90.00	90+15.00 (105.00) until paid off
Auto	10,300.00	285.00	285.00 + 105.00 (390.00) until paid off
Discover	19,900.00	325.00	325.00 + 390.00 (715.00) until paid off

NOTE: If this debt is paid in full, and you find yourself in a position to put the entire balance (225.00 in this case) plus the minimum payment towards the next debt… you will accelerate your debt repayment schedule.

Once each debt is paid off in ascending order, adding the prior minimum payment will escalate the rate at which you pay the next debt.

Get it?

You will.

Debt snowball is great for those of us who need a little extra motivation.

Those of us who like to “check things off our list”, so to speak.

If you pay debt down to “zero”, regardless of how big… it can give you a sense of accomplishment you need to pay off the next one quickly.

And the one after that…

And the one after that…

And so on.

Hopefully, as you approach the finish line (or final debts owed)… any extra money being put towards the larger debts should grow more quickly, akin to a snowball rolling downhill gathering more snow.

Thus, the name for this method.

There are a plethora of debt snowball calculators to choose from online… I liked the one from Nerdwallet the best.

But it’s a personal choice.

Dave Ramsey also offers an online packet that you can print out to help you get your started.

There is always help to be found.

What is Debt Avalanche?

Debt Avalanche focuses on paying off the debts with the highest interest rates first.

The total balance is irrelevant.

The idea here is to get rid of those high-interest debts faster, so as to pay less interest over time and pay off the principal.

Believers of this method believe that getting rid of interest will save them the most money in the end.

Debt avalanche works like this:

1. Identify the debts with the highest interest rates.
2. Make a list of those debts in descending order (high to low).
3. If you haven’t already done so, subtract your living expenses from the monthly budget to come up with your “free cash” amount
4. Apply your “free cash” amount to your debt repayment schedule, using that money to pay off your minimum balances first…
5. Whatever is leftover should be applied to the highest interest debt.

Huh?

It’s not that complicated.

Look!

Another chart…

Debt	Total Balance Due	Interest Rate	Minimum Payment Due
American Express	6,500.00	18.35%	90.00
Amazon Visa	225.00	15.89%	15.00
Discover	19,900.00	13.62%	325.00
Auto	10,300.00	3.25%	285.00

Unlike the debt snowball chart we provided early, this chart lists the same debts… but in descending order based on highest interest rate.

Now, say you’re free cash amount is 1050.00 per month.

Your monthly minimum payment total is 715.00.

That leaves you with 335.00 in free cash to apply towards the highest interest bearing debt.

In this case, the American Express.

So you would pay the minimum amounts due on the Amazon Visa, Discover and Auto…  and 425.00 to American Express (90.00 + 335.00).

You will continue to do this each month until the American Express is paid off.

Then you’ll move on to the Amazon Visa.

Then Discover.

Finally, the car.

Debt Snowball vs. Debt Avalanche: Finding a Common Ground

There are distinct differences to these methods, but their end game is the same.

They are designed to help you get out of debt.

On paper, the debt snowball and debt avalanche methods are nearly identical in their initial setup… with the lists and determining your “free cash” budget.

And both provide ways to pay down debt faster.

In fact, some financial gurus even suggest using the methods together. 

This involves sorting the debts by the highest interest rate… but then choosing to start by repaying the debt that annoys you the most.

Ignoring both the interest and total balance.

Think of it as a kind of a debt repayment smorgasbord.

Tasty sounding, right?

Final Thoughts on Debt Snowball vs. Debt Avalanche

Choosing how to repay your debt is a personal choice.

And, quite frankly, the greatest chance of success will come from a plan you can stick to.

You have to feel motivated to kick debt to the curb!

So in my humble opinion, if you are a “check items off the list” type of person… the debt snowball plan of attack will likely keep you the most motivated.

And staying on track is more important than a few extra bucks you’ll save in interest over the next few years using the debt avalanche repayment method.

Conversely, if you are mathematically wired…

If you can see the big picture…

If you are sickened by the thought of giving creditors even 1-cent more than you have to…

Then you’re likely to be seduced by the debt avalanche.

And that’s fine.

Both work if you want them to.

Don’t cheat the system… pay your due diligence…  and you will succeed.

Snowballs.

Avalanches.

They are both about gaining ground.

Gaining momentum.

So pick the debt repayment strategy that works for your lifestyle and personality, and take hold of it!

By re-paying one debt at a time, no matter how small, you are moving one step closer to financial freedom.

And that, my friend, is something to be proud of… no matter which road you took to get there.