You’re ready to pay off debt, but what’s the best way to go about it? Should you use the debt snowball method or the debt avalanche?
If you’ve been in debt for a long time and want to get out of debt for good, the debt snowball is highly likely to be best. (I’ll go into why later.)
But there’s more to it than that, so read on for details, especially if “but won’t I pay more interest if I use a debt snowball instead of a debt avalanche?” just popped into your head.
The debt snowball vs debt avalanche: What do they have in common?
Yeah, I know, they’re supposed to be duking it out, but it’s important to start with what they have in common, because that’s what makes BOTH methods so much better than the alternative.
To use either method, you list out all of your debts and then focus heavily on whichever debt is at the top of your list while making minimum payments on all the rest.
Then when you pay off a target debt, you take what you’d been paying to that target debt and start piling it on to the next target debt.
In both cases, this means the amount you pay toward your target debt grows larger and larger over time. So by the time you’re on the last debt on your list, your payments are huge. That’s the power of both of these methods, and it’s why they’re both so much better than the alternative.
What’s the alternative to both the debt snowball and the debt avalanche, you may ask?
The alternative is paying off a debt and then — once you’re done — going out and spending that former monthly payment money on something else (like a vacation or furniture) instead of using the money to pay down another debt. Basically paying off one debt at a time according to the creditor’s terms.
That’s a super slow way to get out of debt – but it’s better than not getting out at all.
And it’s better than immediately going back into debt again once you pay off a debt. Many people do that with cars. They pay off their car, and then immediately start thinking about replacing it with a new one. That’s the debt treadmill method, where you never get off.
What’s the difference between the debt snowball vs debt avalanche?
So, what’s the difference between the two ways to pay off debt? I’ve got a detailed explanation of both methods in these articles, The Debt Snowball Method Explained and The Debt Avalanche Explained, but here’s a quick overview of the only difference between the two, technically speaking.
- In the debt snowball, you list all of your debts in order from lowest balance to highest balance, no matter what their interest rates.
- In the debt avalanche, you list all of your debts in order from highest interest rate to lowest interest rates, no matter what their balances.
That’s it. The order you pay off your debts in is the only difference between the two methods, technically speaking. Other than that, they both work exactly the same way.
How do you decide whether to use the debt snowball vs the debt avalanche?
First, don’t blindly assume that you’ll pay more interest with the debt snowball vs debt avalanche, because you might or might not. Sometimes you might pay more in interest with the debt avalanche. Sometimes you might pay less. Or it could be about the same either way.
The only way to find out for sure is to put your exact debts and your exact payment amounts into a debt calculator and see. (I highly recommend my own Pay Off Debt app.)
Second, know that you absolutely will pay more interest if you give up and stay in debt. So use the one you’ll be most likely to stick with! The one that will keep you fired up so you succeed.
That’s likely to be the debt snowball method, because it gives you a psychological boost from paying off debts quickly. It gives you lots of small wins, and that keeps you motivated.
In fact, a study by Kellogg School researchers David Gal and Blakeley B. McShane “found that consumers who pursued the ‘small victories’ strategy were more likely to eliminate their entire debt balance.”
If you’re still hung up on the math aspect of the debt snowball vs debt avalanche…
If you’re still hung up on the math aspect of the debt snowball vs debt avalanche debate, and are mentally arguing about how it’s not logical to pay more interest, I want to gently point something out here.
You probably didn’t get into debt logically, and you’re probably not going to get out that way either.
What makes more sense, paying $100 or $118 for the exact same thing? If you borrowed money and are paying interest, you did so for reasons that weren’t about math.
Getting out of debt is about changing your habits and your actions for good. (If you’d like tips on that, here’s where to start.)
What’s going to help you succeed?
Most people have a lot more success with the debt snowball method. They get some early successes, get fired up, and stay that way for the long haul. So my vote is usually for that :) In fact, we inadvertently used the debt snowball method to get completely out of debt, house and everything. (Here’s our story.)
One exception to this is usually if you’ve acquired your debt all at once (such as getting hit with a slew of medical expenses that were way above and beyond what your insurance covered) and are typically used to living without debt. In that case, it can absolutely make sense to use the debt avalanche, assuming you really do pay less interest with that in your situation.
Another exception is if you’ve got extremely high interest debt like payday loans. If that’s the case, do everything you can to get those nasty little things paid off first, starting with whichever one is easiest for you to get paid off. You want those out of your life as fast as possible.
The point is to choose whichever method works best for you. They will both work if you stick with them, but one will be easier than the other for you.
Deciding which method to use is a matter of knowing yourself and your situation.
No matter which method you chose to pay off debt, get started
Take the extra money you can find in your budget (or money you make by selling things you no longer need, doing surveys, babysitting, getting a second job, etc) and send that plus whatever extra you had been paying toward your other debts to debt you’ve chosen to focus on first. (Because remember, you’re only paying minimum payments to the other debts.)
Unless there is a penalty for doing so, make a payment as soon as you get the money. Have an extra $5 today? Go online and make a $5 principal-only payment toward your chosen debt. Get an extra $20 tomorrow? Do the same thing. Don’t wait until the bill is due or until you have a certain amount “saved up”. Just pay every chance you get. (Just remember to make the regular payment before the due date as well.)
Once your chosen debt is wiped out, choose the next debt in line to focus on. Your debt repayment will speed up over time, because as each debt is paid off, you’ll be able to use the money you were paying toward that debt toward the next debt in line.
And celebrate each step of the way, because paying off debt is a great feeling!