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August 30, 2023

Debt Snowball vs. Debt Avalanche: Which is Right For You?

Debt Snowball vs. Avalanche

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If you sometimes have a hard time believing you'll ever come up with enough extra money to pay off all your debts, rest assured you're not alone. Between student loans, personal loans, car loans, credit card debts, and other common offenders, recent statistics show that the average American is now grappling with over $100,000 worth of outstanding debts. And $6,000 of that is with super high interest credit card debt! 

With interest rates on the rise, sometimes paying off debt can seem like an epic feat. Trust me, I get it – because I’ve been there.

When Nicole and I were newlyweds, we decided to set out on a quest to become debt-free. The only problem was that between the two of us, we found ourselves challenged with climbing out of a $50,000 hole. 

Not only were we able to reach our shared goal, but we picked up a lot of great lessons about money along the way. One piece of advice I often find myself passing along to my coaching clients is that while paying off debt requires discipline, it also requires creating a solid strategy. In this debt snowball vs. debt avalanche article, we'll share two strategies to help you win your debt freedom battle.

A Tale of Two Teams

Imagine two teams facing off against each other. The first has a coach who has taken the time to build a sound strategy based on the individual talents of each of his players.  

The second coach is feeling a bit overwhelmed by the entire game and ends up sending out whoever's next on the bench and hoping for the best. It doesn't take a statistical genius to guess which team is probably going to go home with the gold. 

Tackling debt is no different. Many of us get caught in the trap of throwing extra money at whatever bill happens to come in first without ever creating a solid debt management plan.  

But if you're ready to really get your head in the game, then I'd like to introduce you to two popular strategies: the debt snowball method and the debt avalanche method. Each snowy-named strategy is designed to help you pay off your debt faster and save money by paying less interest in the long run. 

The Debt Snowball vs. Debt Avalanche Methods 

The debt snowball method is a strategic approach to debt repayment that involves focusing on paying off your smallest debts first. You then target your next smallest debt, and so on until you're debt-free. 

The debt avalanche method involves paying off whichever debt has the highest interest rate first. Then you shift your focus to the one with the next highest interest rate, until all your debts are effectively wiped out. 

Which is the best way to pay? The truth is there's no wrong answer.

In the end, it may come down to anything from personal preference to which strategy feels the most manageable for your financial situation. We'll explore both strategies as we go along, but first, let's take a look at the key ingredient that both the debt snowball and debt avalanche methods have in common. 

The First Step to Tackling Debt

In order for either the snowball or avalanche method to work, you first need to line up your metaphorical team players. Just like our strategically-minded coach, it's going to be impossible to create a winning playbook until you understand exactly what you're working with. 

The secret to both the snowball method and the debt avalanche is paying more than your monthly minimum payment on one debt at a time. I know, coming up with extra funds isn’t always easy.

But the terrible truth is that while making your minimum monthly payments may help keep your credit report afloat, it's doing little to improve your financial health in the long run. This is often particularly true in the case of credit cards.

Simply making low monthly payments while continuing to ring up more debt is a recipe for staying trapped in an endless debt cycle, Whether you decide to tackle your debts with the debt snowball method, the debt avalanche, or pretty much any other debt repayment plan, the first step is getting clear about how much you owe and how much interest you're paying.

Get a Clearer Picture of Your Debt

Your first task will be to create a list of all your debts, along with the following information about each:

  • Balance Owed
  • Interest Rate
  • Minimum Monthly Payment

For the sake of example, let's imagine you come up with the following list:

Debt TypeCurrent BalanceInterest RateMinimum Monthly Payment
Credit Card$2,00020%$125
HELOC Loan$25,0006%$300
Medical Debt$5004%$40

Once you've completed your list, you're off to a great start! It's time to take things a step further by creating another list that breaks down a list of all your monthly living expenses.

Detail how much money you spend each month on everything from food and clothing to utility bills and rent/mortgage payments. Think this list sounds suspiciously like a budget? You're not wrong!

The idea here is to get a handle on how much money you make each month vs. how much you absolutely have to spend on living expenses and minimum payments. You may even want to tweak your budget here in order to free up as much money as you can to pay off debt. 

Now that you know how much extra money you can set aside each month, it's time to decide on which strategy you want to use to become debt-free. So without further ado, let's look at the differences between the debt snowball vs. debt avalanche methods to help you choose the best option for you. 

What is the Debt Snowball Method?

As you now know, the debt snowball approach works by lining up all your debts from the smallest balance to the largest. One of the biggest pros of creating a debt snowball and sending it rolling is that watching your debts disappear one by one provides a nice little psychological boost!

Each time a debt is eliminated, you'll also end up with more money to put toward the next debt. Let's demonstrate how the debt snowball method works by imagining the plight of the Familiar Family.

Before the Snowball Method

The Familiar Family is a young couple who just started combining their finances a few years ago. Recently, they've added a baby to their family–and their budget! As a result, they want to get serious about paying off their debt.

Debt TypeRemaining DebtInterest RateMinimum Payment
Credit Card$90013.50%$35
Student Loan$14,0504.99%$393
Car Loan$9,4007.25%$526

Putting the Snowball Method to Work

The Familiar Family takes a look at their debts and decides that the debt snowball method sounds right for them. So they rearrange their debts starting with the lowest balance and working her way down. 

Debt TypeRemaining DebtInterest RateMinimum Payment
Credit Card$90013.50%$35
Car Loan$9,4007.25%$526
Student Loan$14,0504.99%$393

After creating a solid budget, the Familiar Family learns that they can cover their living expenses, make the minimum payments on their debts, and pay an extra $200 toward their debt. If they follow through, they can cross their credit card debt off the list in a few months.

Then, they can take that extra $35 from the monthly minimum payment on their credit card debt and apply it to other debts. Now, they are making the minimum payments on their car loan and student loan. Plus, they can add that same $200 and another $25.

But there's one important caveat – in order to keep the debt snowball from melting, they can't add more debt to the pile. More so, they might consider revisiting their budget often to try to increase their extra payments. This is especially important after a raise or other unexpected windfall.

How Does the Debt Avalanche Method Work? 

The debt avalanche method, aka “debt stacking,” involves arranging your debts from the highest interest rate to the lowest interest rate. The idea is that by paying off higher-interest debt first, you'll end up saving money in the long run. 

Let's illustrate how the debt avalanche method works with the story of Homeowner Hal and his wife Haley. Hal and Haley have decided the time has come to take care of their debt so that they can take the leap into entrepreneurship and possibly even part-time work

The Debt Avalanche in Action

So, they sit down and assemble a list of their debts, which looks something like this:

DebtRemaining BalanceInterest RateMinimum Monthly Payment
Hal's Credit Card$85020%$70
Haley's Credit Card$6,00023%$100
Student Loans$5,0005%$60
Auto Loans$15,00010%$230
Medical Bills$2,0003%$50

Since Hal and Haley want to rid themselves of high-interest payments as quickly as possible, they agree that the debt avalanche method is for them. So they proceed to rearrange their list with the higher-interest debt at the top.

DebtRemaining BalanceInterest RateMinimum Monthly Payment
Haley's Credit Card$6,00023%$100
Hal's Credit Card$85020%$70
Car Loan$15,00010%$230
Student Loans$5,0005%$60
Medical Bills$2,0003%$50

After agreeing to set aside $500 extra dollars a month, Hal and Haley proceed to chip away at Haley's credit card first, slowly but surely reducing the amount of interest it incurs each month. After they've successfully eliminated the card from the queue, they take their original $500 plus the $100 a month they no longer have to hand over to Haley's credit card company and begin putting $600 a month toward paying off Hal's card. 

As long as they follow the plan, they'll end up with $670 a month to pay off their car loan and $900 a month to pay off their student loan debt. By the time they reach the debt with the lowest interest rate, they'll have $960 a month to wipe out their medical bills with no problem. 

What About Debt Consolidation?

Depending on your personal circumstances, there may be situations when considering debt consolidation makes sense. If you're struggling to pay off your debts due to obscenely high-interest rates, then it may be worth looking into credit cards that offer a 0% introductory balance transfer or a low-interest debt consolidation loan. 

Just use caution with this approach and make sure to read the fine print. If the lower interest rates are subject to change over time, then you'll want to make certain that you can pay off your balance before the intro rate expires. Particularly if there's a chance they could morph into higher interest rates than you're already paying! 

Final Thoughts on Debt Snowball vs. Debt Avalanche

No matter which debt repayment strategy you choose, as long as you stick with it, there's no stopping you from achieving your goals! While it may take time and discipline, there's nothing more rewarding than the freedom of living debt-free. 

To help you get started, we've assembled a collection of some of the best budgeting apps for families, each of which is packed with tools to help you manage money. Congratulations on taking the first step to overcoming debt and best of luck along your journey! 

What is your favorite debt payoff strategy? Where do you fall in the debt snowball vs. debt avalanche debate?

Please let us know in the comments below.

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.

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About Marriage Kids & Money

The Marriage Kids and Money Podcast is dedicated to helping young families build wealth and happiness.

With over 400 episodes and counting, we share interviews with wealthy families, award-winning authors, and personal finance experts to help you find your version of family financial independence.

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