Paying Off Your Debt: The Snowball Plan vs. The Avalanche Method

Oh man, it feels so good to pay things off! Getting rid of debt you’ve been dragging around with you for years is just so satisfying. Goodbye, $5,000 I borrowed to study abroad for one summer! Don’t come back soon, $1,500 I put on a credit card to buy a new laptop! You want to be able to use the money you have now to have all the fun you can afford, not pay off all that fun you had when you were young and dumb about money.

Some real talk for a minute: If you’re serious about paying off your debt, you really need to figure out ways to cut back. You can’t try to pay off the $1,000 worth of bar tabs you accumulated last year from all those after-work happy hours, while adding an additional $1,000 worth of bar tabs this year. You need to give up some of those happy hours, or else nothing will ever get paid off, and you’ll get stuck in this cycle of debt. Of course, bad habits are hard to break, so take baby steps (more advice on saving money here).

Okay, enough of that!

When people make an effort to pay off their debt, they usually try one of either two methods: the “snowball” method, or the “avalanche” method. Let’s get into both, and then talk about which one might work better for you. 

Snowballing: The snowball method involves making a list of all the balances you owe to various institutions (credit cards, student loans, car loans, etc.) and then tackling your smallest balance first. What you’d do is pay the monthly minimum on all your balances, except your smallest balance, which you’d pay off the most aggressively by applying as much extra money to it as possible. Once you eliminate the smallest balance, you tackle the next smallest balance, and then the next until you’ve paid everything off.

The Avalanche: This method requires a bit more math. It’s basically the opposite of snowballing, except you’re not paying off your largest balance, but rather your most expensive balance, or the balances with the highest interest rate. So, say you have three credit card balances: $500 with an annual percentage rate of 10%, $2,000 with an APR of 20%, and $5,000 with an APR of 15%, you’d pay off the credit card with an APR of 20% first, because that’s the one that will cost you the most over the long run due to compound interest. Once you eliminate the balance with the highest interest rate, you’d move on to the balance with the next highest interest rate (the $5,000 balance with the 15% APR), until all your balances are paid off.

Which method is for you?

So, which approach is better? Famous money person Dave Ramsey swears by the snowballing method because most people have trouble motivating themselves to pay off their debt. Starting out with “quick wins” by eliminating small balances first can get you energized to pay off the rest of your debt. For Ramsey, paying off debt isn’t a question of math — not which method will save you the most money in the long run — but a question of behavior. If you’re the sort of person who needs a lot of motivation to get rid of your debt, snowballing is probably the best method for you. Attack those small balances, and feel good about the steps you’re taking to be debt-free.

But if you’re the sort of person who’s already motivated to pay off your debt, you should definitely go with the avalanche approach. High interest rates on credit cards compound quickly and can keep you in debt for a very long time, so it’s a good idea to focus on those balances first. If you have student loan debt, consider the following: Unlike the interest accumulated on credit cards, you can actually deduct up to $2,500 worth of qualified student loan interest during tax time, which is pretty awesome. But you should still make an effort to get your student loans paid off, because unlike credit card debt, you can’t discharge your student loan debt if you ever get into really deep financial trouble and need to declare bankruptcy.

One last bit of advice: Once you’ve paid off your balance, make sure it stays paid off. Cut up your credit card, or close your account (yes, your credit score will be slightly affected, but who cares — you’re getting yourself debt-free. Just keep the one credit card you’ve had the longest to maintain a good credit score, and get rid of the rest of ‘em). Also, don’t do that thing where you open up new credit cards and transfer balances to get a lower interest rate, because you’ll have more credit cards open, which means you might be enticed to charge money on those cards.

Have your own magic method of eliminating debt? Let me know about it.

Photo Credit: Flickr/MissMessie/Dawn

13 Comments / Post A Comment

Slutface (#53)

“Also, don’t do that thing where you open up new credit cards and transfer balances to get a lower interest rate, because you’ll have more credit cards open, which means you might be enticed to charge money on those cards.”

THIS. Don’t do this kids!

@Slutface I did this at least 3 times. I’ve now got ~$11000 in CC debt because I also don’t have much of an emergency fund. Blah.

I am definitely interested in hearing more about what does and what doesn’t affect your credit score. Every time I talk about closing down a credit card people say NO! but I do it anyway, because I want less cards, not more.

jenfizz (#100)

Pay off student loan debt. I almost did a spit take. There is nothing short of winning the lottery or having Woody Harrelson take a liking to me that would get my student loans paid off. I consider it a monthly charge that I will have for the rest of my life, like a gas bill or a phone bill.

Bettytron (#111)

@jenfizz Hear, hear. Let’s start a club where we alternately complain about Sallie Mae and write love letters to Woody.

Brunhilde (#78)

What method is best if you lost your financial aid in college so you kept putting your tuition on credit cards so you could use your job money for rent and then your house burnt down and you were homeless for a while and then you just started ignoring all the bills you couldn’t pay and didn’t get the bills for anyway because, you know, homeless, and then you just kind of ignored any unknown number for the next, say, 11 or 12 years?

Brunhilde (#78)


@fo (#839)


You have credit card debt that you haven’t paid anything on for over a decade? Depending on where you live, it may be completely uncollectible–most states have a statute of limitations of less than ten years for seeking a judgment on bad debts.

Any student loans are a different matter, if guarnteed by the government.

I like the snowball method because, in addition to giving you “quick wins,” it reduces the number of bills you have to pay every month — which means fewer opportunities to forget to pay it and get charged with a late fee and a credit score ding.

Trilby (#191)

BTW, you can only deduct your student loan interest if your taxable income stays below a certain level (which changes every year). I didn’t know this until I started to make a nice living. As my income went up, my tax deductions vanished. So that kinda sucks.

Also, I really want to get rid of my student loan even though the interest rate is low, like old-timey low, but I hate paying off a loan where the smaller balance will not yield a smaller minimum payment. It’s not like credit card debt in that respect. So here’s my plan: I’m going to “pay off” my student loan INTO a savings account, and when the money’s ll there, THEN I’ll send them a check.

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