How to Pay off Your Debt – Avalanche or Snowball

Debt is a big problem, especially with the way student loan debt has grown over the years.

According to Student Loan Hero, the average student loan debt for the Class of 2016 graduates is $37,172.00.

Furthermore, Value Penguin says that the average debt per household in America is found to be $5,700.00, with a median of $2,300.00.

If we took a look at a recent survey (late 2015s) from GOBankingRates, 62% of Americans have under $1,000 in Savings, which wouldn’t be enough to cover their debt if they encountered an emergency or became unemployed.

With so many financial problems, the first thing we should do is remain optimistic. We should learn to become financially literate and start paying off our debt through a practical repayment plan that is going to work for us.

There are two popular strategies that I mentioned in my Simple What to Do with Your Money Guide, which are the Avalanche and Snowball methods.

Brief Disclaimer: Some of the products and services on this post may offer compensation for referrals. For the products and services that do not receive compensation, there are referred simply because I think these products and services and useful and will be convenient to have.

Debt Snowball

The Debt Snowball method wants you to start paying off your debts from the smallest to largest by the amount owed. Not by interest rates, but by the amount owed.

Remember back to our childhood, where you would pack some snow into a small and compact ball in your hands? Then you start rolling and rolling it through the snow and the tiny little snowball starts growing and growing, becoming a big and huge boulder? Imagine trying to build that boulder by hand! It would have been much harder to do!

The Debt Snowball method allows you to finish off debts one by one quickly as you are paying off the smallest loan and removing it from your life when it’s complete. After the first, then it’ll be the second, then the third, and then so on. Sooner or later, it’ll be all gone!

The Debt Snowball method is a great plan if you find yourself needing some “small wins” to keep yourself motivated or if want to see results to pump yourself up at times. It’s not the fastest method, but it’s the best method to keep yourself psychological sane and motivated against our dark and daunting loans.

Debt Avalanche

Unlike the Debt Snowball method, the Debt Avalanche method wants you to start paying off your debt from the largest to smallest in terms of interest rates.

By paying off the loans with the higher interest rates, you will be saving money and time because the interest doesn’t get to compound as fast. When I say compound, I mean the interest that is calculated on your initial principal plus the accumulated interest.

Let’s take your savings account for example, if you have $1,000.00 in your account with an interest rate of 1.00%, you will end up with $1,010.00 by the end of year one. For year two, you would earn interest on the entire amount of your balance, which is $1,000.00 (the initial principal) plus $10.00 (accumulated interest). With every year that goes on, the interest will keep compounding and your balance will grow larger and larger. However, the same thing applies to your loans!

If saving money is your primary goal and you can stick to a strategy, use the Debt Avalanche method. You will pay off your loans faster and pay less interest overall!

Case Study: Debt Snowball vs Debt Avalanche

Suppose we have $100,000.00 in debt and it is comprised of the following:

  • Loan 1: $25,000.00 at 8.00%
  • Loan 2: $15,000.00 at 12.00%
  • Loan 3: $20,000.00 at 14.00%
  • Loan 4: $10,000.00 at 10.00%
  • Loan 5: $30,000.00 at 8.00%

Let us assume that the minimum payments for each loan are $25.00 and the maximum amount we will pay to our loans per month is $1000.00.

If we were to use the Debt Snowball method, we would arrange our accounts like this and put the majority of our monthly payment towards the first loan.

  1. Loan 4: $10,000.00 at 10.00%
  2. Loan 2: $15,000.00 at 12.00%
  3. Loan 3: $20,000.00 at 14.00%
  4. Loan 1: $25,000.00 at 8.00%
  5. Loan 5: $30,000.00 at 8.00%

I’ll be using an online debt simulator found at unbury.us to help us calculate when we will finish paying off our loans. It’s a great tool and you should check it out!

According to unbury.us, we will be completely debt free by May 2032.

LoanPaid Off OnTotal Interest Paid
1March 2026$18,893.32
2September 2019$3,387.71
3August 2022$14,448.67
4January 2018$446.84
5May 2032$46,041.88

The first loan that we paid off will be in 2018, which is only one year from now. Then the second one is in 2019, the third in 2022, the fourth in 2026, and the last one in 2032!

The total interest paid will be $83,218.42!

Now if we were to use the Debt Avalanche method, the accounts would be arranged like this and the majority of our monthly payment would go towards the loan with the highest interest.

  1. Loan 3: $20,000.00 at 14.00%
  2. Loan 2: $15,000.00 at 12.00%
  3. Loan 4: $10,000.00 at 10.00%
  4. Loan 1: $25,000.00 at 8.00%
  5. Loan 5: $30,000.00 at 8.00%
LoanPaid Off OnTotal Interest Paid
1October 2025$17,698.21
2January 2021$6,284.86
3March 2019$2,974.43
4April 2022$5,385.11
5September 2031$43,083.57

With the help of unbury.us, it is simulated that we will be completely debt free by September 2031, a whole eight months earlier than using the Debt Snowball Method! The total amount of interest paid is $75,426.18, which is a whole $7,792.24 that we don’t have to pay!

The first loan will be paid off in March 2019, which is a whole year and two months slower than our first complete loan on the Debt Snowball method on January 2018. The second loan is paid off on 2021, the third on 2022, the fourth on 2025, and the last on 2031.

LoanDebt SnowballDebt Avalanche
1March 2026October 2025
2September 2019January 2021
3August 2022March 2019
4January 2018April 2022
5May 2032September 2031

If we were to compare the pay-off dates between the Debt Snowball and Debt Avalanche methods, we would find that we pay off the first two loans faster on the Debt Snowball method, but the last three slower.

The reason is because the Debt Snowball method makes you pay the smaller balances first in order to keep yourself motivated and continue paying off your loans. It gives you the feeling of a “little win” along the way of paying off your debts.

The disadvantage with the Debt Snowball method is that you are allowing loans with higher interests to compound and accumulate, which is why the latter three loans are paid off later.

Final Words

While the Debt Snowball method is slower at paying off loans than the Debt Avalanche method, it is still a method I would encourage to people who are motivated by “small wins” and like to see progress when achieving the goal of being completely debt free.

If you find yourself not needing to track your progress and can stick to a strategy until your goal is reached, the Debt Avalanche method may be more suitable for you.

Check out The Simple What to Do With Your Money Guide if you haven’t already! It serves as a great baseline towards becoming more financially literate with your money.

If you aren’t tracking already your accounts or net worth, check out Personal Capital! It’s an amazing online tool that provides great visualizations and is easy to use!

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If you liked this post, feel free to share it with your friends or connect with me on social media and give me a shout out! It really helps me continue to produce more and better content for you guys!

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19 thoughts on “How to Pay off Your Debt – Avalanche or Snowball

  • January 23, 2017 at 9:13 pm
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    I have to admit that I encourage my friends that are in debt to use the debt snowball. While the debt avalanche makes financial sense. The debt snowball from a psychological standpoint is easier to see the progress and more likely to stick with it. But my feeling is as long as they have a plan in place it’s better than nothing 🙂

    Reply
    • January 23, 2017 at 9:30 pm
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      Yep, as long as they have a plan, they should be alright.

      I tend to recommend the Debt Snowball method as well. The only times I would recommend the Debt Avalanche are when I’m sure the individual can stick to a plan until it’s complete and not worry about their progress.

      Reply
  • January 23, 2017 at 10:08 pm
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    Cool comparison, SP! I’d agree with you to encourage the debt snowball method for those who will be motivated by small wins and momentum. I suppose once the momentum is big enough, you could always switch over to the avalanche method and save a bit. Either way, the biggest step is start chipping away. Great post. 🙂

    Reply
    • January 24, 2017 at 12:18 am
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      Thanks for the comment, Michael!

      Yes, switching methods is always possible. The key is being flexible!

      Reply
  • January 24, 2017 at 10:04 am
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    I only have car debt right now with a really low rate. However, my wife is thinking about going back to school for a masters. The debt part of that worries me, but I believe as my government accounting professor once said that education is one of the best investments you can make!

    Reply
    • January 25, 2017 at 12:06 am
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      I agree with you!

      Education is definitely one of the best investments you make! And if the master’s can get you a higher paying salary, then the return on investment would be higher!

      Reply
    • January 27, 2017 at 9:40 am
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      Yes, SMM. Education is, indeed, the best investment. You know, sometimes the degree doesn’t even matter for company placement. They just want to see that you can commit yourself to something and accomplish a goal you set out to complete.

      Reply
  • January 24, 2017 at 3:49 pm
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    Great post with beautiful graphs! I prefer the Debt Snowball over the Debt Avalanche even though the Debt Avalanche will lead to less interest being paid. Most of personal finance is psychological, and the Debt Snowball is preferable psychologically for most people.

    Reply
    • January 25, 2017 at 12:07 am
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      Thanks, Wall Street Physician!

      It’s definitely much easier for people to do the Debt Snowball method as it would keep them motivated when they see their debt crumbling down with the results they are getting. 🙂

      Reply
  • January 25, 2017 at 3:47 pm
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    Haha. This is a very good question and someone asked me which is better when I spoke at a personal finance workshop the other week. The reason I was invited to speak is that we paid off £100,000 (approx $160,000 at the time) in three years; and with interest. From my experience, one should do what motivates them most – the rest is technicality. (I love the graphs and the examples).

    Reply
    • January 25, 2017 at 8:12 pm
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      Thanks for the comment, Maria!

      I agree that people should do whichever method that motivates them the most! The graphs and examples were primarily made with the help of http://unbury.us. Check it out if you get a chance!

      Reply
    • January 26, 2017 at 1:36 pm
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      Thanks for the comment, Chris!

      Reply
  • January 29, 2017 at 8:32 am
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    Go Penguin’s average seems low but I guess that is why it is an average but the scariest thought about what I read above (and nobody touched upon it) is that 62% of Americans have under $1,000 in Savings.

    That number is scary but let’s go 100 steps further. According to NPR in late 2016, 7 million kids ages 10 to 17 struggle to get enough to eat.

    So, while debt is a HUGE problem it’s very understandable why so many turn to getting into it in the first place when eating becomes a priority.

    Reply
    • January 30, 2017 at 8:43 am
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      Definitely true, Jai.

      It’s unfortunate that some people have to resort to debt in order to feed their families.

      Reply
  • January 30, 2017 at 3:34 am
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    I’m a fan of the debt snowball method myself. A big part of personal finance is behavioral, and I think most people need that extra motivation to pay off debt, especially if they have multiple debt obligations. Awesome visual aids, by the way!

    Reply
    • January 30, 2017 at 8:44 am
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      Thanks, SRGO! The visual aids were mainly thanks to unbury.us.

      I agree, if the person isn’t willing to prioritize it, then there’s nothing we can do, even if it’s the smart thing to do.

      Reply
  • March 11, 2017 at 12:12 pm
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    This is such a great breakdown! I tend to recommend the debt snowball method, even though I would personally go with avalanche. For people who aren’t familiar with tackling debt, the reward of paying something off I feel is a huge driver of staying on track.

    I enjoyed this post a lot! Thanks for writing. 🙂

    Reply
    • March 13, 2017 at 10:14 pm
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      Thanks for the comment, Jane.

      I agree that the Debt Snowball method is great for people who aren’t experienced in paying debt as they can see the rewards of it piling on and continue feeling motivated during the debt payoff process. 🙂

      Reply

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