debt snowball vs debt avalanche

How To Use The Debt Snowball Or Avalanche To Pay Off Debt Quickly

If you’ve read our detailed article on the steps to personal finance, you know that getting out of debt is a key component.

It’s critical to pay off your debt because it will hold you back financially and prevent you from building true wealth. But you have to remember that this doesn’t mean you shouldn’t have a mortgage.

The kind of debt I am talking about here is what some people call ‘bad debt’. Credit card debt, payday loans, personal loans, auto loans and student loans.

Student loans are usually referred to as ‘good debt’, but the fact of the matter is that they usually come with high interest rates.

But when it comes to debt, what you might not realize is that there is a growing debate on the best way to pay it off. While most of the financial world universally agrees having a budget is a must, the order in which you pay off debt is a different story.

Personal finance seems forever stuck with people arguing about why their way is better than yours and why you should choose the Debt Snowball or the Debt Avalanche to get out of debt.

These are two different methods for determining which debts to pay off first.

It seems most people have forgotten about the most important word in personal finance. The word specifically being, “personal.” Most of the personal finance experts fail to recognize that there is not a one size fits all for your money.

People are in different circumstances and have different personalities. What works for one person may not work for the other.

By understanding this, we can begin to explore the ins and outs of personal finance and how we can relate to others to provide the most accurate unbiased information.

Get Out Of Debt On Your Own

If you are actively learning about finance, you have heard that most personal finance experts agree you can get out of debt on your own. If you talk to a debt consolidation or settlement company, they will certainly tell you that you need their help, and need to pay them a hefty fee for their services.

In reality, you can manage your own finances and get out of debt if you arm yourself with the right information. As you know, spending less and saving more is pretty worthless advice if you don’t have a solid plan in place, but it’s screamed from the mountain tops by the financial experts in the spotlight.

Today I’m going to give you a comprehensive overview of the two best ways to get out of debt. You heard that right, there is not one best way, but two! By learning about both structures, you can choose what would work best for your personality and your circumstances.

The Debt Snowball Or The Debt Avalanche?

Two of the best ways to get out of debt will be examined and presented to you. It’s up to you to make the final decision as to which processes would be most beneficial in your situation.

An Overview Of The Debt Snowball

The debt snowball was made popular by Dave Ramsey and his team in the early 1990s. It is what he has based his entire career on and regularly touts it as the best and only real way to get out of debt.

Because it is his bread and butter, there is no way he would ever dream of thinking there was any other way to get out of debt. It would challenge his entire program and hurt his profit.

Now this is not to say that the debt snowball is not a good process. The debt snowball can absolutely help you get out of debt and stay motivated. That is why I have included it as one of the two best ways to get out of debt. But if you’re looking for honest information, avoid taking advice from people who make money on their promoted processes.

An Overview Of The Debt Avalanche

The debt avalanche is not credited to any one person but is pushed by many in the personal finance community as a whole. Unfortunately, the personal finance community (which I am part of) is filled with a bunch of numbers geeks who don’t necessarily understand the human psychology of things.

The debt avalanche, as you will see, makes much more mathematical sense and may save you money in the long run compared to the debt snowball. However, the debt avalanche may be the absolute wrong way for you to pay off debt depending on your situation and personality.

How To Tell Which Method Is Right For You?

Here we will define and go over each method to help you make an informed decision and choose the best debt payoff method for you.

As stated earlier, there is no one best method that works for everyone. You are a unique person with unique circumstances. Through proper education, you will be able to make a plan to get out of debt and finally experience financial peace!

How Does The Debt Snowball Work?

In a nutshell, the debt snowball focuses on lining up all your debt and paying off the lowest debt first and moving up the line.

The debt snowball is the absolute best way to pay off debt if you struggle with motivation and give up easily in difficult situations.

Follow this process to use the debt snowball:

  • List all of your debts in order of their total balances
  • Ignore the interest rate on the debts
  • Pay the minimum on all of your debts except the one with the lowest balance.
  • Put all of your extra money towards your debt with the lowest balance.

Example Of The Debt Snowball

  • Credit Card #3 – $500 balance (18% interest rate) <——– pay off this debt first
  • Credit Card #1 – $3,000 balance (17.25% interest rate)
  • Vehicle #2 Loan – $6,500 balance (4.25% interest rate)
  • Credit Card #2 – $7,000 balance (18.5% interest rate)
  • Credit Card #4 – $10,000 balance (15% interest rate)
  • Vehicle #1 Loan – $23,000 balance (4% interest rate)
  • Student Loans – $80,000 balance (7% interest rate)

Pay the minimum on all the debts as you put everything towards Credit Card #3 with the $500 balance. As you pay off the first debt, move on to the next one until you eventually pay off all your debt.

  • Credit Card #3 – $500 balance (18% interest rate) <——– pay off this debt first
  • Credit Card #1 – $3,000 balance (17.25% interest rate)
  • Vehicle #2 Loan – $6,500 balance (4.25% interest rate)
  • Credit Card #2 – $7,000 balance (18.5% interest rate)<——- current debt to pay off
  • Credit Card #4 – $10,000 balance (15% interest rate)<– pay the minimum on the rest
  • Vehicle #1 Loan – $23,000 balance (4% interest rate)
  • Student Loans – $80,000 balance (7% interest rate)

The Benefit Of The Debt Snowball

By using the debt snowball, you will see wins quickly. The process of paying off smaller balances at the beginning is advantageous to people who need to see results in order to stay motivated.

The psychology of achieving small wins has been shown to provide nudges to push you over the finish line. Some of you will really benefit from that.

Think of your friends who are starting to exercise and take regular photos of themselves so they can track how their body is changing. Seeing their waist trim down or seeing their arms becoming more toned in photos motivates them to stick with their plan.

The debt snowball relies on this feedback cycle.

Don’t underestimate this if you’ve had trouble reaching financial goals in the past. If you’ve tried to pay off your debt for years, this might make all the difference.

The debt snowball is relatively easy to follow and to put together. It is beneficial for people who have trouble finishing what they start and need to see results quickly. There’s nothing wrong with that.

The Problem With The Debt Snowball

Compared to the debt avalanche, it will mathematically take longer to get out of debt. You will also pay more money in interest using this method than you would with the debt avalanche. The larger your interest rates and balances, the larger the difference in the pay off methods.

The reason for this is you may have a large balance with a high-interest rate. Ignoring this high interest will continue to accumulate more and more debt due to the high interest. Unlike a high interest bank account, a higher rate is much worse when you owe money.

How Does The Debt Avalanche Work?

The debt avalanche uses the same principle as the debt snowball by paying the minimum on all of your debts except for one. By attacking one debt at a time, the laser focus will help you pay off your debt faster than using a shotgun approach to debt.

The debt avalanche focuses on the interest rate and prioritizes your debt payoff based on the interest rate. The highest interest rates are paid off first and you move down the line in a similar fashion to the debt snowball.

The debt avalanche is the absolute best way to pay off debt if you are easily motivated and don’t give up easily in difficult situations.

Follow this process to use the debt avalanche:

  • List all of your debts in order from highest interest rate to lowest interest rate
  • Ignore the balances of your debt
  • Pay the minimum on all of your debts except the one with the highest interest rate
  • Put all of your extra money towards your debt with the highest interest.

Example Of The Debt Avalanche

  • Credit Card #2 – $7,000 balance (18.5% interest rate)<——– pay off this debt first
  • Credit Card #3 – $500 balance (18% interest rate)
  • Credit Card #1 – $3,000 balance (17.25% interest rate)
  • Credit Card #4 – $10,000 balance (15% interest rate)
  • Student Loans – $80,000 balance (7% interest rate)
  • Vehicle #2 Loan – $6,500 balance (4.25% interest rate)
  • Vehicle #1 Loan – $23,000 balance (4% interest rate)

Using the same loans from the snowball scenario, you can see a few loans changed priority. For this process, pay the minimum on all the debts as you put everything towards Credit Card #2 with the $7,000 balance. As you pay off the first debt, move on to the next one until you eventually pay off all your debt.

  • Credit Card #2 – $7,000 balance (18.5% interest rate)<——– pay off this debt first
  • Credit Card #3 – $500 balance (18% interest rate) 
  • Credit Card #1 – $3,000 balance (17.25% interest rate)
  • Credit Card #4 – $10,000 balance (15% interest rate)<—– current debt to pay off
  • Student Loans – $80,000 balance (7% interest rate)
  • Vehicle #2 Loan – $6,500 balance (4.25% interest rate)
  • Vehicle #1 Loan – $23,000 balance (4% interest rate)

The Benefit Of The Debt Avalanche

The debt avalanche is mathematically the quickest way to pay off debt if you can stay motivated. Through the process of paying off the high-interest debts first, you will avoid the high compounding debt that comes with high interest.

The debt avalanche will save you money in the long run and provides a clear path on how you can get out of debt. The Finance Twins, have always relied on the avalanche method because they have always been extremely analytical. So what motivates them is seeing the numbers and data.

They don’t need to see smaller balances paid off first, because they get excited by efficiency and organization. But it’s okay if you aren’t wired the same way. Everyone is different.

The debt avalanche is perfect for people who are focused and don’t have problems staying motivated.

The Problem With The Debt Avalanche

While math equations are great, we must not forget the human element of personal finance. Many people in debt struggle with motivation and struggle to follow a plan. There is a significant danger to using the debt avalanche if you cannot stay motivated.

The debt avalanche process can be difficult because you may not see immediate “wins” for quite some time. This can cause people to quit their debt payoff plan altogether and cause more harm than good.

How To Choose The Right Plan

Before you start your debt payoff plan, take an honest look at yourself and figure out what type of person you are. How motivated are you and what plan best fits your personality? There is no wrong way to get out of debt, as long as you actually do it!

Either plan you choose will get you out of debt, it just depends on which one suits your personal financial situation. The debt snowball is the slower and costlier way, but if you can stick to it and get out of debt, it was absolutely the right plan for you!

The debt avalanche will get you out of debt sooner and with less money but there is a real danger of losing motivation. This plan is perfect for those driven individuals who are only in debt because they didn’t have a budget in place for their money.

If you are uncertain which plan to choose, I highly recommend going with the debt snowball. You will see quick wins and it has a psychological advantage over the debt avalanche.

Either Way, It’s A “Win-Win”

However you choose to get out of debt, you are a winner! There are many paths to the debt-free life as long as you choose a plan and stick to it. Achieving financial independence is a realistic goal that should be at the forefront of your mind.

I encourage you to continue on your debt free journey! The feeling of peace that comes with a debt-free life is absolutely amazing! You work too hard to be this broke – it’s time to do something about it.

Ryan Luke

As a full-time police officer and personal finance blogger, Ryan has made it his personal mission to provide honest and easy to understand personal finance information. He is a husband and the father of three children. Through proper budgeting and money management, they have been able to live off one income and build wealth at the same time. Come join him in an active conversation about all the best personal finance information available at ArrestYourDebt.com!

2 thoughts to “How To Use The Debt Snowball Or Avalanche To Pay Off Debt Quickly”

  1. Thank you for such a thorough article! I appreciate the breakdown of both methods, it’s made it much easier for me to decide which one to choose!

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