Snowball vs. Avalanche: Which One Will Clean Up Your Financial Mess?

Happy Thursday wonderful people! In previous posts we discussed the importance of budgeting, decreasing expenses, and increasing income. By doing those things, I hope you have found extra money to repay your debt. Today, let’s talk about how to apply that extra money towards your debt. Let’s break down the debt snowball and the debt avalanche methods and see which one is better. I am picking a side. I can confidently say that one is better because I tried both. If my preference is not your favorite, that is OK. Read my thoughts and then tell me your reasoning. Let’s dive in!

Debt Snowball

The debt snowball is a repayment method where all debts are ranked by balance (regardless of interest rate).  Minimum payments are made on all debts except the one with the smallest balance. You attack that debt with an additional payment each month until the balance is paid in full. Once it is paid off, the money is rolled into the next debt with the smallest balance.

See the example below. You would make the minimum payments on all four accounts, but the account with a balance of $1,500.00 would be attacked and paid off first (despite having the highest interest rate). After that one is paid off, the you would crush the account with the $2,000.00 balance.

  • Account 1: $1,500.00 with 7.50% interest rate
  • Account 2: $2,000.00 with 0.00% interest rate
  • Account 3: $15,000.00 with 6.25% interest rate
  • Account 4: $20,000.00 with 0.99% interest rate

Debt Avalanche

The debt avalanche is a repayment method where all debts are ranked by interest rate (regardless of balance). Minimum payments are made on all debts expect the one with the highest interest rate. You attack that debt with an additional payment each month until the balance is paid in full. Once it is paid off, the money is rolled into the next debt with the highest interest rate.

See the same example above reorganized for the debt avalanche method below.  You would make the minimum payments on all four accounts. The account with a balance of $1,500.00 would be attacked and paid off first. After that one is paid off, the you would crush the account with the $15,000.00 balance.

  • Account 1: $1,500.00 with 7.50% interest rate
  • Account 2: $15,000.00 with 6.25% interest rate
  • Account 3: $20,000.00 with 0.99% interest rate
  • Account 4: $2,000.00 with 0.00% interest rate

Comparing the Two

With the debt snowball, you pay the smallest balance first and work your way up (by increasing balance), regardless of interest rate. With the debt avalanche, you pay extra money toward the debt with the highest interest rate and work your way down (by decreasing interest rate), regardless of the balance.

Which One Is Better?

Paying off debt sucks and it is hard. It requires huge amounts of intensity, focus, and patience. That is why most people have a hard time doing it. The key to smashing debt is – sustained motivation. The advantage of the debt snowball is that it helps build motivation for debt repayment. Whereas, it is harder to sustain motivation with the debt avalanche method. Considering that it will be harder to stick to repaying debt using the avalanche method, you will not reap the money-saving advantages.

In the two examples above, the $1.5k balance is paid off first. After that, things differ. The second balance paid would be the $2k balance with the snowball method or the $15k with the avalanche method. Let’s pause here. If you just smashed $1.5k would you rather attack a $2k debt or a $15k debt? I would feel more excited about crushing the $2k debt.

Let’s re-look at the examples based upon time. Let’s say it took a month and a half to pay off $1.5k. At the same rate, it would take 2 months to smash the $2k debt. Yet, it would take 15 months to crush the $15,000 debt. That is a long time to wait for a second win, especially if you are just starting out.

I strongly encourage you to use the debt snowball method to repay your debt. Do not waste your time using the debt avalanche method. It will be harder to stick with. Considering how motivated you will be using the debt snowball; the cost difference will be minimal.

Comment below and tell me about your thoughts on the snowball and avalanche methods.

Join the Debt Free Squad

I hope you will join the squad. Joining allows me to spread awareness about the benefits of living debt free to more people. Here is how you can join:

  • Follow on Twitter and join in the conversations.
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If you are already apart of the squad, thank you!

By Simone, creator of Slim Fit Wallet