Debt can hold you back from achieving your financial goals that can create a life you love. So deciding to tackle your debt is a smart choice. But as you consider your debt repayment options, you’ll likely run into a debate on the avalanche vs. snowball debt repayment strategies.
We will explore the differences between the debt snowball vs. avalanche methods. With the information, you can decide for yourself which option is right for your situation.
What’s the difference between avalanche vs. snowball methods?
The debt avalanche and debt snowball both allow you to tackle your outstanding balances. However, as you consider your debt repayment strategies, you should weigh the differences between these two options.
The good news is that both methods provide effective opportunities to eliminate debt from your life. First, however, you’ll need to decide which option will align best with your financial habits and goals.
Here’s a closer look at the avalanche vs. snowball methods.
What is the debt avalanche?
The debt avalanche is a debt repayment method that focuses on the interest rates attached to your debts starting with the highest interest rate first. A higher interest rate equates to more expensive loans.
With that, the debt avalanche is designed to repay your loans without paying any more than you have to in interest payments. This is accomplished by funneling any extra money you have set aside for debt repayment to the outstanding loan with the highest interest rate.
Once you pay off your loan with the highest interest rate, you’ll move on to the loan with the second-highest interest rate. With the money you have set aside to repay debt and the minimum payment of the debt you eliminated, the avalanche will continue to grow as you wipe all of your debts off the books.
Here’s an example. Let’s say you have four loans:
- A car loan with an outstanding balance of $10,000 with an interest rate of 7%.
- A credit card balance of $5,000 with an interest rate of 17%.
- A personal loan with an outstanding balance of $2,000 with an interest rate of 9%.
- A student loan with an outstanding balance of $15,000 with an interest rate of 4%.
You have an extra $500 budgeted towards extra debt repayment. In the avalanche method, you would start by paying off the credit card balance. With that, you could avoid spending extra money on interest payments. Once you eliminate your credit card balance, you would move on to your personal loan, then your car loan, and finally your student loan.
Keep in mind when comparing the avalanche vs. snowball, you can save more money on interest with the avalanche method because you are paying off high-interest loans first.
What is the debt snowball?
The debt snowball method is another popular strategy. Essentially, you tackle your smallest loan balance first. Then, as you eliminate smaller debt, you can roll the minimum payment and any funds you have set aside for debt repayment into a bigger snowball to tackle your next largest debt.
As the snowball grows, you’ll tackle larger and larger debts until you’ve paid them all off. So the difference in avalanche vs. snowball is choosing whether to pay the highest interest first or the smallest balance first.
Want to take a closer look at the snowball method? Take advantage of our free in-depth guide that includes a free worksheet to help you set up your debt snowball plan.
Which makes the most sense for you: avalanche vs. snowball
The average American consumer has $92,727 in outstanding debts. A few of the most notable average loan balances include $38,792 in outstanding student loans, $19,703 in outstanding auto loans, and $5,315 in outstanding credit card balances.
If you find yourself with multiple outstanding loans, it can be a financial and emotional challenge. With that, you’ll need to take some time to consider which debt repayment strategy will work best for your situation.
The avalanche method is the more efficient way to pay down your debt. Through this method, you will prioritize high-interest debt and pay off your debts without any extra interest payments.
However, you may miss out on small wins along the way if your high-interest loans have large balances.
With that, the avalanche method works best when you are motivated by the numbers. If you don’t mind giving up the emotional victories of wiping a smaller debt out of the way, then the avalanche method will help you achieve your goal of being debt-free more efficiently.
Although the snowball method may be less efficient, the strategy can help to keep you motivated if you appreciate small wins. By starting with your smallest debt, you may be able to eliminate at least one debt from your books relatively quickly. From there, you will continue to gain momentum.
The emotional component of achieving small victories along the way may help to keep you more motivated to accomplish your ultimate goal of being debt-free. If you know that you’ll appreciate the small wins to keep yourself on track, then the snowball method is likely the right choice for you. So, when comparing the avalanche vs. snowball method, pick the one you're more likely to stick with.
Debt snowball vs. avalanche: How to decide
Not sure which method to choose? Take some time to consider what motivates you.
If you know that the numbers are enough to propel yourself toward debt-free, then the avalanche method will work well. But without the small wins, it could be hard to stay motivated. That’s why you may want to consider the snowball method instead.
As you grow your snowball, you’ll eliminate smaller debts that are standing in your way. Each eliminated debt is a chance to celebrate your progress and remind yourself why you started the journey.
Whether you choose to pursue the avalanche method or snowball method, either will propel you towards your long-term financial goals. As you work towards eliminating your debt, take the time to celebrate your successes along the way. Acknowledging your progress can help you find the determination to stick to the plan and conquer your debt once and for all. So be sure to keep these things in mind when comparing the avalanche vs. snowball methods.
If you need more help deciding, then consider taking our free course. You’ll learn how to create a debt repayment strategy that is designed with your goals in mind.
Eliminate debt with either method
Ready to dig yourself out of debt? Take some time to choose between the avalanche and snowball methods. Remember when comparing the debt snowball vs. avalanche methods to choose the one that will keep you motivated to pay off debt. Once you chart your path, you’ll be on your way to a debt-free life.