Paying Off Debt: Snowball vs. Avalanche Method

Debt can build up seemingly overnight, yet it can take much longer to pay off. Becoming debt-free takes time and effort, but there are two ways you can do it: The snowball method and the avalanche method. 

Both methods assume you owe money to multiple lenders. If you are in debt with just one lender, focus on paying them as much as possible and as quickly as possible to avoid paying unnecessary interest charges. 

Both the snowball and avalanche approaches have pros and cons, so here’s everything you need to know about these two debt repayment strategies, along with examples.

Key Takeaways

By familiarizing yourself with the snowball and avalanche methods, you can decide which strategy best aligns with your goals and learn how to budget to eliminate debt. Here’s a quick glimpse at what you need to know:

• The snowball method involves paying off the smallest debts first, regardless of interest rates

• With the avalanche method, you attack the debts with the highest interest rates first, saving money on interest payments over time

• Snowball payments can provide you with quick wins to keep you motivated

• Avalanche payments are more efficient if you’re disciplined enough to stay the course.

The Debt Snowball Method

Remember making snowballs as a kid? You would first pack a small ball of snow in your hands, and if you were lucky enough to be on a hill, you'd let the snowball roll down, watching it gather snow along the way until it became a giant snow boulder. That's how the snowball method for repaying debt works.

It involves paying as much money as possible towards your smallest debt, regardless of the interest rate, while maintaining just the minimum payments on your other debts. Once the smallest debt has been paid off, you roll the money you were paying towards that debt into your payment on your next smallest debt. And once that one is paid off, you roll that money onto the next one, and so on. This way, you continue to increase the amount you’re paying towards your smallest debts, knocking them off one by one, because your payments “snowball” into faster debt repayment.

How to Pay Off Debt Using the Snowball Method

Here’s how to implement the debt snowball method:

1. Start by listing all types of debt and accounts from the smallest balance to the largest.

2. Always make your minimum monthly payments on all debts.

3. Focus on extra payments on the smallest balances.

4. Attack the smallest balances first.

5. Take the money you were allocating to the now paid-off debt and apply it toward the next smallest balance.

6. Repeat until all debts are paid.

The debt snowball method is popular for those with a relatively low income and multiple debts.

Debt Snowball Example

The table below lists four hypothetical debts, from smallest balance to largest. Using the snowball method for debt repayment, you would repay these debts in this order while still maintaining your minimum payments on all. 

In this example, you would tackle your debt as follows:

1. Putting as much money as possible towards paying off Credit Card #1 while still paying the minimum payments on the rest of your debts. Let’s say you can pay an extra $50 every month on top of the $60 minimum payment, for a total of $110.

2. Once Credit Card #1 is paid, you’ll move on to your car loan, paying $235 every month ($110 monthly payment for Credit Card #1 + $125 minimum payment for your car loan).

3. Once the car loan is paid, you’ll move on to Credit Card #2, paying $385 per month ($125 monthly car loan payment + $235 from previously paid debts)

4. Once Credit Card #2 is fully paid, you’ll put $565 toward your student loan ($385 from previously paid debts + $180 minimum student loan payment).

Here’s a breakdown:

• Credit Card #1: Paid off by Month 22

• Car Loan: Paid off by Month 35

• Credit Card #2: Paid off by Month 43

• Student Loan: Paid off by Month 49

You can speed up the process by paying extra toward your lowest balance when your budget allows.

Pros and Cons of Debt Snowball

Credit Canada Credit Counsellor Anna Guglielmi believes that the debt snowball method can have some powerful psychological impacts on individuals struggling with debt.

"The idea of tackling your debt quickly is appealing and motivating. This method is beneficial for people who need to see smaller wins and are motivated with managing fewer accounts."

Anna Guglielmi, Credit Counsellor, Credit Canada 

Here are a few other benefits of the debt snowball:

• Quick wins keep you motivated.
• Easy to follow and manage multiple debts.
• Ensures that you make minimum payments.
• Builds momentum.

The snowball method can keep you motivated and help you avoid paying off debt with a line of credit or balance transfer credit card. However, there are some potential drawbacks, which include:

• Won’t necessarily result in interest savings.
• Longer repayment time.

It also leaves little to no room to save for the future — you’re supposed to allocate most or all of your extra money toward the smallest debt on your list.  

The Debt Avalanche Method

You may be thinking that it makes more sense to pay down debt with the highest interest rate first. In some cases, it does, known as the avalanche method for debt repayment.

Also called debt stacking, the avalanche method involves maintaining the minimum on all of your debts, but paying the most money you can towards the debt with the highest interest rate first—regardless of how much money is owed. While it might take longer to eliminate your first debt based on how high the balance is, in the long run you're likely to save hundreds, if not thousands of dollars in interest charges.

How to Pay Off Debt Using the Avalanche Method

Here’s a step-by-step breakdown of the debt avalanche method:

1. Itemize your debts and arrange them in order of highest to lowest interest rates

2. Keep paying the minimum payments on personal loans, credit card debt, and other accounts

3. Funnel as much extra money as you can toward the debt with the highest interest rate

4. Continue this process until you’ve paid off all debts.

The debt avalanche method can help you tackle bad debt first by prioritizing accounts with the highest interest rates. It lets you protect your credit score, as well, provided you’re paying the minimum balance on all of your accounts.

Debt Snowball Example

Following the avalanche method for debt repayment, you would repay your debts in the following order, while maintaining your minimum payments on all:

In this scenario, you would do the following:

1. Put as much money as possible towards paying off Credit Card #1 (since it has the highest interest rate) while making minimum payments on the rest of your debts. Let’s say you can pay an extra $50 every month on top of the $60 minimum payment, for a total of $110.

2. Once Credit Card #1 has been fully paid, you’ll pay $260 toward Credit Card #2. ($150 minimum payment for Credit Card #2, plus $110 from previously paid off debt).

3. Once Credit Card #2 has been fully paid, you’ll pay $385 toward your car loan ($125 payment for car loan, plus $260 from previously paid off debt.)

4. Finally, once your car loan is paid, you’ll pay $565 toward your student loan. ($180 payment for student loan, plus $385 from previously paid off debt.)

Just like in the snowball method, once you’ve paid off one debt, add that monthly payment to the next debt you tackle. It’s called the avalanche method because your efforts are compounded by the money you're saving in interest, so your debt gets smaller while your payments get larger. 

Here’s how it works out:

• Credit Card #1: Month 22

• Credit Card #2: Month 40

• Car Loan: Month 42

• Student Loan: Month 48

You can accelerate the process by putting even more toward the debt you’re currently working on.

If you used the snowball method, you would pay $4,980 in interest fees, while with the avalanche method, you would pay $4,800, saving you $180.

Pros and Cons of Debt Avalanche

Guglielmi says the debt avalanche allows you to “save more money in the long run, but you may have to wait a bit longer to see individual accounts paid in full. Applying the avalanche method requires patience, focus, and trust in the process.”

Here are some advantages of the debt avalanche method:

• More efficient
• Save more money on interest in the long term
• Shortens the overall repayment timeline by reducing interest accumulation 

The avalanche method can also help you pay off debt without hurting your credit score, as you’ll be making minimum payments on all accounts while putting extra toward your highest-interest debt.

That said, there are some downsides to the avalanche approach as well. For instance:

• Requires more discipline, especially early on
• Progress may feel slower

Eliminating high-balance credit card debt or student loan debt can take years, even though you’ll save on interest.

Not sure whether you should try the snowball, avalanche, or something different, like a debt consolidation loan? Our debt snowball vs. debt avalanche head-to-head comparison will help you decide.

Snowball vs. Avalanche Method: Which Is Better for Eliminating Debt? 

Which method is right for you? Our Debt Calculator can help you figure that out, but it really comes down to your personality and your financial goals. While the avalanche method is apt to save you money in the long run (and is often the preferred choice for Type A personalities), many prefer the snowball method because paying off the smallest debts first achieves quick upfront wins, which is really motivating for some people and helps them stay on track with their debt repayment. 

So what do the experts say? According to a field study where consumers used both methods, the Journal of Consumer Research reveals that the snowball method is more likely to lead to success because of the psychological benefits and instant gratification related to paying off a debt balance in full more quickly. But if you're looking for the best of both worlds (paying off debt faster and saving on interest), debt consolidation may be your best option. Whatever you choose, remember, the only wrong way of repaying debt is to not pay it!

If you’re unsure which method to choose, call Credit Canada for a free credit counselling session. Our certified Credit Counsellors will walk you through your debt repayment options and help you determine which strategy is best for your situation.

Get debt help now or call 1(800)267.2272 to get started.