Snowball or Avalanche: Choosing a Debt Payoff Order

If you owe money on more than one loan or card, the order in which you pay them off changes how much interest you pay and how quickly you see progress. The two best-known approaches, the snowball and the avalanche, use exactly the same total budget. They only disagree about where the extra money goes.

Both start the same way. You pay the minimum on every debt, every month, without fail. Then whatever is left in your repayment budget goes to one target debt. When that debt is gone, its minimum payment plus the extra rolls onto the next target, so the amount aimed at each new debt keeps growing.

The two orders

The snowball targets the smallest balance first, regardless of interest rate. It was popularized by the radio host and author Dave Ramsey, and its appeal is psychological: you clear whole debts early, which many people find keeps them going.

The avalanche targets the highest interest rate first. Mathematically, it always costs the same or less in interest, because the most expensive debt is shrinking fastest.

A worked example

Take three debts and a repayment budget of $750 a month:

A personal loan of $1,200 at 9 percent, minimum payment $50
A credit card balance of $6,000 at 24 percent, minimum payment $180
A car loan of $8,000 at 6.5 percent, minimum payment $250

The minimums add up to $480, which leaves $270 a month extra.

With the snowball, the extra goes to the personal loan first, and it is gone in month four. The credit card follows in month 18 and the car loan in month 23. Total interest paid comes to about $1,990.

With the avalanche, the extra goes to the credit card first. It is cleared in month 16, the personal loan in month 17, and the car loan in month 23. Total interest comes to about $1,815.

Both plans finish in the same month. The avalanche saves roughly $175, while the snowball gives you a paid-off debt a full year earlier. In this example the gap is modest. It grows when the high-rate debt is also large, and it shrinks when the smallest debt happens to have the highest rate, in which case both methods choose the same order.

For comparison, paying only the minimums on the same three debts, without rolling freed-up payments forward, would take about 56 months and cost roughly $4,920 in interest. Either structured plan more than halves the interest and finishes nearly three years sooner, which is a bigger difference than the choice between them.

Which one to choose

If you are confident you will stick with the plan, the avalanche costs less. If you have tried and given up before, or you have several small balances that could be cleared quickly, the early wins of the snowball may be worth the extra interest. A plan you abandon after three months saves nothing. Some people use a hybrid, clearing one or two very small debts first for momentum and then switching to the highest rate.

Ways to speed up either plan

The single biggest lever is the size of the monthly budget. Every extra dollar shortens the timeline, and windfalls such as tax refunds or bonuses can go straight to the target debt.

Lowering the interest rate helps too. A balance transfer card with an introductory 0 percent rate can pause interest on card debt for a period, though there is usually a transfer fee of 3 to 5 percent, and the rate jumps when the offer ends. A consolidation loan at a lower rate can replace several high-rate debts with one payment. Both only help if the old cards are not run up again.

It is also worth simply calling your card issuer to ask for a lower rate, or about a hardship program if you are struggling. Many issuers have them, though they may close or freeze the card.

Before you start

Set aside a small cash buffer, even a few hundred dollars, so an unexpected bill doesn't go straight back on a card. Set every minimum payment to autopay so a late fee never derails the plan. And if debts feel unmanageable, a nonprofit credit counseling agency affiliated with the National Foundation for Credit Counseling can review your situation and, where appropriate, set up a debt management plan with your creditors.