Debt snowball vs. debt avalanche: Which strategy is right for you?

Paying down multiple debts can be challenging. Having a strategy — and sticking to it — is key to making it happen.

Two common approaches you might consider are the snowball method and the avalanche method. Each offers a framework for effectively and efficiently addressing multiple debts. But the types of debt they prioritize differ. Here is what you need to know about them and how to decide which is best for your financial situation.

What is the debt snowball method?

Definition and process

The debt snowball method prioritizes your lowest-balance debt. You'll make minimum payments on all your debts and direct any extra funds to the smallest debt first.

Once that is paid off, you then focus on the next-smallest debt (using the funds you freed up from paying off the previous balance) and repeat the cycle until all debts are paid off. This is said to mimic a snowball, which gets larger and gains momentum as it rolls down a hill.

Benefits of using the debt snowball

Using the debt snowball method can be a great way to get the ball rolling in terms of paying off your debt, as the name implies.

"The snowball method can be implemented by listing your various debts in order from the lowest total balance to the highest balance and targeting paying off one debt in full at a time in that order," says Lauren Anastasio, a CFP professional and senior offer development strategist of advice methodology at Vanguard. "By making the minimum payment on all of your other debts and putting all your extra cash toward the smallest balance obligation first, you'll pay off entire loans or cards faster, reducing the total number of bills you have to pay each month."

That's not to say it's faster or always preferred over all other strategies, but it can be more efficient than making the minimum payments.

And while the debt snowball method is typically more expensive than the avalanche approach — which tackles higher-interest debt first — the snowball method offers a potential "behavioral" incentive, according to David W. Barnett, owner of Grand Arbor Advisors.

"Personal finance involves both mathematics and behavior," Barnett says. "The snowball method, while perhaps not as mathematically effective, can have significant behavioral value in that there is a strong sense of reward to paying a debt in full and reducing the number of outstanding debts."

In particular, the snowball method can help you see that your actions can have positive consequences in terms of clearing out debts, even if you start small.

"The debt snowball method is a great option for people for whom debt is a behavior problem," says Bobbi Rebell, CFP, founder and CEO of Financial Wellness Strategies. "If you need those quick wins to motivate you to make progress, the debt snowball is the way to go. It will not save you on cost since you're not paying on the highest interest rate first, but it can help prompt behavior changes to keep you consistent and maintain momentum.

Potential drawbacks

By using the snowball method, you could end up paying more in interest over time vs. other methods like the debt avalanche, since this snowball approach prioritizes tackling debt with the lowest balances instead of the higher interest rates. It can also leave you carrying debt for longer than other methods.

Debt snowball pros and cons

What is the debt avalanche method?

Definition and process

With the debt avalanche method, you prioritize your debts based on their interest rate, focusing your extra funds on the highest-interest debt first. When that debt is paid off, you move down the ladder to the debt with the next-highest rate, and so on.

"You make minimum payments on everything, and throw as much as you can toward the debt with the highest interest rate," Rebell says. "Once you've paid off the debt with the highest interest rate, roll that payment toward the next debt with the highest interest rate. Repeat until you've paid off all your debt. Like an avalanche, there's no stopping it once momentum starts."

Benefits of using the debt avalanche 

The major draw of using the debt avalanche strategy is reducing your overall interest costs.

"From a purely mathematical view, the avalanche method will always result in the most debt reduction per dollar, since the most expensive debt will be eliminated first," Barnett says. "The intention with this method is to eliminate your highest-interest-rate debts first in order to save money."

Potential drawbacks

This approach is best if you're looking to save as much money as possible, but it does have some drawbacks. For one, it can be frustrating not to realize results quickly, such as if your highest-interest debt also has a large balance that takes a long time to clear. It also can mean that you will need to continue juggling several debts for longer.

"This method works best for people who have a lot of debt or high interest rates on their debt," says Thomas Racca, manager on the personal finance management team at Navy Federal Credit Union. "This method can be frustrating because it may take longer to reduce the different avenues of debt you have, but it will pay off the debt fastest by prioritizing the higher debt amounts first."

Debt avalanche pros and cons

What is an advantage to using the high rate method? Namely, the higher the interest rate and the longer you let that debt sit, the more interest you'll accumulate. Even if it's not the highest balance, paying off the loan with the highest interest rate first can save you the most money, assuming you keep going with the avalanche by paying off the next highest-interest debt.

For simplicity's sake, suppose you had a $10,000 loan with a 5% APR that would incur $500 in interest charges if the balance is untouched. Meanwhile, a $5,000 loan with a 10% APR would also incur $500 in interest. Yet if you still left both untouched, the first loan would be $10,500 with a 5% APR, incurring $525 in interest. The other loan would be at $5,500, and the 10% APR means it would incur $550 in interest.

While in the real world, your loans would likely be more complex, such as with monthly interest charges and minimum payments, this goes to show the advantage of tackling the highest interest rate first.

Debt avalanche vs. debt snowball

Key differences between the two methods

There are a handful of significant differences between the snowball method and the avalanche method. While the former involves prioritizing debts with the lowest balances, the latter involves prioritizing debts with the highest interest rates.

While the first one can help users build momentum, providing a psychological benefit, the second helps them reduce total interest costs.

How to find the best debt payoff method for you

Is the snowball or avalanche method better? There's no universal best debt payoff method. If you're having trouble paying down your debts, both the snowball and the avalanche strategy can help. The choice between the avalanche vs. snowball method depends on the situation and your preferences. And both can be effective. The key is to pick a debt and prioritize it, according to Anastasio.

Still, there are some things to consider when finding which one might work best for you between the avalanche vs. snowball method:

Factors to consider when choosing avalanche method vs. snowball method

As mentioned earlier, the key difference between using the debt snowball method and the debt avalanche method is a matter of what kind of debt you want to prioritize. If you have smaller debts and want to notch some quicker wins, you may want to use the snowball method.

However, if you want to have the lowest total costs by paying off high-interest debt first, pick the avalanche method.

Either way, prioritization is crucial.

"The last thing you want to do is spread your effort around by paying a little extra on all of your bills," Anastasio says. "If you have multiple credit card balances, loans, or other debts you want to pay off, choose one debt, commit to paying the minimum on all your others, and put every extra dollar you have toward paying off that one debt in full. This is the quickest way to eliminate the number of bills you have to pay."

Real-life applications

Examples of each method in action

The first approach we will illustrate using a specific example is the snowball method.

Say you have a personal loan with a balance of $4,500, a credit card balance of $8,000, and a car loan for $20,000. With the snowball method, you'd make the minimum payments on your credit card and car loan while putting any extra funds you have toward your personal loan, since that has the smallest balance.

Once you pay off the personal loan, you'd start focusing on your credit card and then, finally, your car loan.

Note: A study from Texas A&M University shows that creating "small victories," as the snowball method does, can be highly motivating.

The next example will examine the impact of using the avalanche method. This is how this approach would work if you had three debts: $3,000 on a credit card at a 15% interest rate, $8,000 on a personal loan at a 9% rate, and $25,000 on a car loan at a 6% rate.

In this scenario, you'd put all extra discretionary funds toward the credit card while only making minimum payments on the personal and car loans, because even though the credit card has the lowest balance, it has the highest interest rate. Once you pay off the credit card, you would focus on paying down the personal loan (which has the second-highest interest rate) and then the car loan.

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