Debt Payment Methods: The Difference Between Debt Snowball and Debt Avalanche

Depiction of improving debt

If you find yourself deep in consumer debt, you’ll want to know the difference between the debt snowball and debt avalanche methods when paying back your loans. Consumer debt can be costly and refers to personal loans like student debt, car payments, credit cards, and medical debt.

The debt snowball and debt avalanche methods are excellent ways to get out of debt. Each requires you to pay minimum payments on all of your loans but one. You will pay more than the minimum payment due on the remaining loan until it’s paid in full. With extra funds available after paying off one debt, you can move on to your next debt and pay more than the minimum payment on that one.

Debt Snowball

The debt snowball method starts with you tackling the smallest of your debts first. Paying off your smallest debt before the others means you will have extra money you can now apply toward the next smallest debt (in addition to its minimum payment). You will continue to do this until each of your debts is paid off.

The idea is that you roll your “extra” money into paying back each subsequent loan from the smallest to the largest loan. As you do this, that payment amount “snowballs” and grows. It also speeds along the amount of debt that is reduced.

First, make a list of all the consumer debt you currently owe, starting with the smallest dollar amount and ending with the largest. Allocate as much money over the minimum amount due as you can on your smallest debt. For the others, continue to pay the minimum payment only.

Once you implement the debt snowball method, the lesser amounts will be paid off first and will be out of the way quicker, allowing you to move on and pay more on your bigger debts.

Debt Snowball Pros and Cons

Debt snowball allows you to see results quickly, making you feel more motivated to continue. And this method does not require advanced math work. You don’t factor in APRs or rate calculations—simply look at each amount due and go from there.

One negative of debt snowball is that it can be more expensive than other solutions. The simple fact that you’re not calculating interest rates might mean you will pay more interest. If you’re dealing with high-interest rates, another option might be preferable.

Debt Avalanche

With the debt avalanche method, you start paying back your debts or loans with the highest interest rates first. It’s similar to debt snowball in that when you finish paying off the first debt; you’ll then put that payment amount toward the next one on the list, and so on until you’re debt-free.

Debt avalanche allows you to focus on the most draining debt to your budget. Doing so means that you are paying less over the time it takes you to pay everything back.

With the debt avalanche method, you’ll make minimum payments only on all your outstanding consumer debt or personal loans. Any “extra” money you have will be allocated toward your debt with the highest interest rate. When that loan is paid off, you’ll then move on to the second-highest debt, and so on.

Debt Avalanche Pros and Cons

There is a downside to debt avalanche. It takes a little longer to see results, so you have to be strong and stick with it. Working down from higher-interest loans requires a certain amount of discipline. If you start to lose momentum and skip a few payments, you’ll have to start all over again. If you continually quit and restart again and again, getting out of debt will feel even more challenging.

Debt avalanche also works best when you have a steady stream of disposable income to allocate toward these payments. Any reduction in income or increase in living expenses can throw you off course.

Debt Snowball vs. Debt Avalanche

In the end, it’s your choice to decide how you want to get out of debt. Since you know yourself better than anyone, what’s the best way for you and your situation?

Some people want to save money and feel better about going with debt avalanche. Others want quicker results, so they go with debt snowball. Both are popular ways to drive down personal debt. Debt snowball

The main difference between debt snowball and debt avalanche comes down to one thing. Are you motivated by math or mindset? There’s no right or wrong answer. You simply pick the one that’s right for you.

And, if you pick one way and then decide you want to switch, you can certainly do that. If you want to pay off substantial debt in just a few years, depending on your situation, the most important thing to do is get started right away and keep going strong.