Snowball Vs Avalanche Method: Which is the Best Strategy to Reduce Debt?

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Jason Lavender

Ardent Authors Photo

Jason Lavender

Jason Lavender

Jason Lavender

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From graduating college to buying a home, we all have goals in life. And when you set out to achieve a goal, you generally want to do it in the “best” way possible. But, what does that mean, really? The word “best” is a loaded term. Does it mean the fastest way to achieve something? The easiest? Or the most efficient?

Ultimately, our idea of what is best all boils down to who we are on an individual level.

Financial goals are no different, and one of those financial goals you set out to achieve might be tackling your debt. There’s no wrong way to knock out your debt and achieve financial freedom. But there are a few different debt management strategies that might work “best” for you over other options. Let’s take a closer look at the two most common debt repayment methods so you can figure out which one is the right strategy for you.

The Debt Snowball vs. The Debt Avalanche

If you’re exploring options to pay off debt, you’ll probably see these two strategies pop up during your search: the debt snowball and the debt avalanche. Both of these strategies are designed to help you tackle your debt, but their differences lie in which types of debts you prioritize.

Check out this video or visit our Financial EDGE academy to learn a little bit more about these debt-reducing methods, and other ways to strategically manage your finances.

Now, let’s take a deeper dive into these debt management methods and see how they actually work.

How the Snowball Method Works

Imagine rolling a snowball. It starts small and then it gets bigger and bigger as it collects momentum—that’s exactly how the debt snowball method works. It’s a debt repayment strategy where you focus on paying off your smallest debts first and use that momentum to tackle the big ones.

With the snowball method, you’ll make the minimum payment on all of your debts, but you put any additional money you have toward the one with the smallest balance. Once you’ve paid off your smallest debt, move on to the next smallest balance. ​As soon as that debt is gone, you eliminate monthly payments, giving you more money to put toward the next debt in line. You’ll repeat the process until your biggest debt is paid off.

This method is all about starting with quick wins that build up your confidence (which can be helpful if you have debt fatigue or need some motivation). Because you tackle your small debts first, you’ll feel empowered when you see results very early in the process. In fact, a study by the Harvard Business Review found that knocking out your smallest debts actually does help keep the psychological momentum going until the job is done. The downside is that you might incur more interest costs, which can make this method more expensive over time than the debt avalanche.

How the Avalanche Method Works

When an avalanche strikes in the mountains, it starts at the top and then cascades downwards. The avalanche debt avalanche method, also referred to as the “debt stacking” and “debt ladder” method, works much the same way. The debt avalanche is a repayment strategy in which you tackle debts in order of their interest rate (from highest to lowest).

With the avalanche method, you still make the minimum monthly payments on all your debts, but you put any extra money towards the debt with the highest interest rate. Like a real avalanche, this strategy picks up speed as it moves downward. Once your first debt is paid off, you then take the money you would use to pay off that debt and move on to the debt with the next-highest interest rate. You’ll repeat this process until you are debt-free.​​​​​​​

The basic idea is that when you tackle high-interest debt first, you’ll reduce the amount of interest you pay overall, thereby minimizing the total cost of your debt. This is the strategy for those of us who are more analytical and want the most cost-efficient way to eliminate our debt. You may not feel the same instant gratification as you would with the snowball method—especially if your high-interest balances are bigger debts that take longer to clear away. But if you have the discipline, the debt avalanche method will save you the most in interest payments—meaning you’ll pay less over time.​​​​​​​​​​​​​​

The Main Differences Between the Two

Phew, that was a snowstorm of information. Let’s quickly recap the main differences between the two before going over which method might be best for you.

Debt Avalanche

  • Eliminate debt by focusing on accounts with the highest interest rate first
  • Most efficient because you eliminate your highest-interest debt first and shorten the time needed to pay off all your debts
  • It may take longer than the snowball to pay off your first few debts

Debt Snowball

  • Line up your debts, from smallest to largest, and start knocking them out one by one
  • Builds momentum and there’s a big psychological boost as you often see results early in the process
  • You may incur more interest in the long run compared to the debt avalanche

How to Pick the Best Debt Repayment Method For You

There is no one-size-fits-all approach when it comes to debt management. Ultimately, the goal is to put yourself in the best position possible for success. Try answering these three questions to see which debt repayment strategy may be right for you.

What's Your Financial Personality?

Yes, the numbers matter when it comes to money. But, how you feel and think about money is just as important. The right strategy is likely the one that aligns with your personality and your needs—and most importantly—one you can easily stick to.

If you’re someone who needs quick wins to stay motivated, you might be a perfect candidate for the snowball method. You may be able to tolerate the possibility that you’ll incur more interest in the long term, as long as those small victories can help you feel psychologically motivated to stay on track.

​​​​​​​If your chief concern is finding an approach that will cost you less time and money, then the debt avalanche might be the right solution for you. You may be able to embrace the fact that it could take longer to tackle your debts at the beginning, but the efficiency and interest savings might make it worthwhile for you.

What's the Amount of Your Debts?

Before you make your decision, you may want to run your numbers. Start by making a list of all your debts, how much you owe for each debt, along with the interest rates, and how much you can afford to pay each month.

Do all of your debts have similar-sized balances? In that case, you might want to try the debt avalanche, because the slower payoff of the snowball method would be less beneficial. Do you have debts ranging from low to high? Then the snowball method may be the right approach—especially if you want to focus on quick wins.  

What Type of Debt Do You Have?

There are different types of debts, and they’re not all created equally. You may have different lenders, and each debt will likely have its own interest rates and refinancing options. All of these differences need to be taken into consideration when you’re considering your financial goals.

If you have several credit cards with high-interest rates, you might want to take the avalanche approach. Or, maybe you have a student loan that you’ve decided you finally want to pay off. In this case, you might want to look at refinancing or debt consolidation options for your credit cards, while you focus on paying off the student loan.

Before you choose a strategy, make sure that you’re considering the bigger financial picture and your long-term financial goals. 

Snowball Vs Avalanche Method: Which is the Best Strategy to Reduce Debt?

At TFNB, We’re Here to Help You Reach Your Goals

As you can see, the “best” way to pay off debt is whatever way works for your situation and goals. The most important thing is to stay committed to whichever plan you choose, whether that is the debt avalanche or the debt snowball.

And speaking of plans, TFNB’s friendly bankers are available any time to help you make a plan for your financial future. If you would like to review your budget, discuss your credit goals, or make a plan for getting out of debt, call us or stop by one of our locations for a chat. We’re here to help you wherever you’re at on your financial journey—that’s why we’re your bank for life.

If you have any questions or would like to know more about our banking solutions, contact us at 254-840-2836

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