Paying Down Debt: Snowball Method vs. Avalanche Method

If you’re like many Americans, you may be working to pay back some type of debt—whether that’s a student loan, a car payment, credit card debt or some other form. Having to manage ongoing payments, especially if interest is accruing, can make it challenging to focus on your other financial priorities. Finding a repayment strategy that works well for you can help make it easier to tackle the task of repayment while keeping an eye on the big picture.The first steps are having a clear sense of exactly how much you owe and making the minimum payments on all of your debts. Be sure to build these costs into your overall budget, as there can be penalties for missed or insufficient payments, which can end up costing you more in the long run.*

Once you’ve got a handle on your minimum payments, take a closer look at your budget to see if you have any flexibility to steer a little more toward your debt. This can potentially open up the door for an accelerated repayment plan.There are two primary strategies to help you pay down your debt more quickly: the snowball method and the avalanche method. Let’s go over how these two approaches compare to help you determine if one may be preferable for you. 

Snowball Method: Start Small and Build Momentum

Using the snowball method, you make minimum payments on all of your debts and then devote extra funds to paying off balances from smallest to largest. The idea is that early success paying off small balances gives you momentum and motivation to take on the larger ones.

The real benefit of this method is that it can help you see the light at the end of the tunnel by making tangible progress at regular intervals. The flipside, though, is that you are not necessarily prioritizing high-interest debt, and interest charges incurred on that debt could be costly.

Avalanche Method: Prioritize High Interest Rates

With the avalanche method, you eliminate debt according to interest rate, from highest to lowest. In essence, you’re prioritizing the debt that is costing you the most, regardless of balance.

The potential drawback here is that it might be harder to stay motivated if your most expensive debt has a high balance, since it could take longer for you to see the results of your effort.

Comparing the Two

The snowball method is the more straightforward of the two methods, in that you can quickly look at the sums you owe and start tackling your debt in a prescribed order, rather than having to calculate any interest rates.

However, it’s important to note that the snowball method can be more costly in the long term. By not prioritizing based on interest rate, you could end up owing more in accrued interest over time and ultimately adding months or years to the repayment process as you pay it back.

The avalanche method, on the other hand, may save you money in the long run by lowering the total amount of interest you’ll pay—and therefore potentially the overall time it will take to pay it off—even if it takes longer to hit milestones along the way.

The Bottom Line

So, how do you know which method is right for you? For the most part, that will depend on your unique financial goals and what motivates you.

The snowball method may be preferable for those who like the momentum that can come from accomplishing smaller tasks, while the avalanche method could be a better choice for those whose main priority is interest savings.

You could also get the best of both worlds by combining these strategies—for example, by paying off your highest-interest debt first for savings, and then moving on to the lowest balance to keep the momentum going.

Ultimately, the ideal strategy is the one you can stick to. Eliminating debt can be a challenging prospect, but with consistent payments and a solid plan, you can pay down your debt and make progress toward your other financial goals.

*If you are having trouble making your minimum monthly payments, some creditors may be willing to work with you to come up with alternate repayment terms. With credit card debt and certain other forms of debt, you may also have the option to consolidate to one lower monthly payment to make repayment more manageable from month to month, but keep in mind, that may not lead to cost savings overall.