Are You A Debt Snowball Or A Debt Avalanche?

Getting into debt usually doesn’t happen overnight, and there are so many different ways for it to happen, but there are really two popular methods of paying debt off.  They are commonly known as the Debt Snowball method and the Debt Avalanche method.

The difference between the two methods:

  • The debt snowball method will payoff your debts in order from lowest balance to highest balance, regardless of the interest rate.  You put any extra money from your monthly budget on your debt with the lowest balance until that debt is paid off.  You then put the money you were paying on that debt, plus any extra money left over, on your next lowest balanced debt until all of your debts are paid off.
  • The debt avalanche method will payoff your debts in order from highest interest rate to lowest interest rate, regardless of the balance. You put any extra money from your monthly budget on your debt with the highest interest rate until that debt is paid off.  You then put the money you were paying on that debt, plus any extra money left over, on the debt with the next highest interest rate until all of your debts are paid off.

Which method is best for me?

I am so glad you asked me that.

Debt Avalanche

Mathematically, the debt avalanche method should pay your debt off quicker than the debt snowball method.  It will also save you more in interest.  By targeting the debts with higher interest, you are eliminating the most toxic debt first.

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The debt avalanche method should pay your debts off faster than the debt snowball method, thus the name, but does not guarantee you the small victories that the debt snowball method does.  If you like knowing that you are going to save money in interest and reach the goal line a bit quicker, then the debt avalanche method may be the one for you.

Debt Snowball

The debt snowball method is great for people who like to achieve small victories quickly.  If you are a person that doesn’t mind spending more in interest and taking a little more time to pay off your debts, this may work for you.

Some definite pros for the debt snowball method are that is simple to figure out because there are no interest rates involved (just balances), and the fact that you achieve small victories quickly by paying off the smaller debts first.  You stay motivated throughout the process.  If you like achieving small, quick victories and feel motivated by that, the debt snowball method may be the one for you.

What do I do first?

Obviously, you need to establish a realistic monthly budget before either of these methods will work.  By developing a realistic monthly budget, you will know exactly how much money you will have on your income side and on your expenses side.  You will also know how much money is needed for the minimum payments on your debts for each method.  This will establish how much extra money you have to put on your debt snowball or debt avalanche.

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What Method Do You Use?

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