Debt Snowball or Debt Avalanche: Which Method Is Right for You?

First things first: List your debts

Typically, the first step to paying off debt is to figure out exactly what you owe. Make a list of all your debts, including any balances on credit cards, personal loans, medical debt, student loans, and car loans. Include the interest rate for each loan in your list.

Here's an example of what this list could look like: 

Organizing your debts can help make it easier to decide how to pay them off.  (Example for illustration only, based on Illinois data. Your situation may look different.)

Once you’ve made your list, figure out your monthly expenses. How much do you spend on food, utilities, rent or mortgage, and minimum payments on all your debts? Remember, you need to pay at least the monthly minimums on all your loans, or your credit score could suffer.

Add up all your monthly expenses and subtract the total from your monthly net income (your take-home pay). Let’s say that after accounting for your expenses and setting aside a little money for savings, you have $300 left over to pay down your debt. Now you’re ready to decide how to use that money.

What is the debt snowball method?

The debt snowball method means paying off your smallest debt first. Look at your list of debt balances and find the smallest amount—don’t focus on the interest rate.

In the example above, you would pay all your monthly minimums. Then you would put your extra $300 toward your car loan, since the $7,500 balance is the smallest. (Pay $300 plus the minimum payment.) Each month, you would continue to pay down the car loan until it was paid off. This lets you pay off that balance faster.

Next, you would take your extra $300 and put it toward your credit card balance until that’s paid off. If you’d like to add what you had budgeted for your car loan, you could pay an extra $435 above the monthly minimum, speeding up paydown. Finally, you would pay off personal loan in the same way.

With the debt snowball method, your payments “snowball” as you knock out smaller balances first and tackle larger balances over time. This method might cost you more money in interest in the long run, but some people benefit from the more immediate sense of accomplishment it provides.

What is the debt avalanche method?

With the debt avalanche method, you start by tackling the highest rate and proceed to the lowest, like an avalanche falling down a mountain.

This means you pay off the debt with the highest interest rate first. Because you are prioritizing your most expensive loans, this method may be the most cost-effective way to pay down debt.

In the example above, you would pay all your monthly minimums. Then you would put your extra $300 toward the credit card bill, because 22% APR is the highest interest rate. (Pay $300 plus the minimum payment.) Each month, you would continue paying down the credit card debt until it is paid off.

Next, you would put that extra $300 toward the personal loan until it’s paid off. Finally, you would pay off the car loan. In this way, you should pay less interest over time.

Which method is better—snowball or avalanche?

It depends. The benefit of the snowball method is the good feeling you get from paying off a loan. In other words, getting rid of debt feels good and can give you motivation to keep going.

But saving money is a worthy goal, too, which is what the avalanche method may allow you to do. Paying off the highest interest rate first means you could save money in interest charges over time. The downside is, it can be hard to maintain momentum when the gratification you get from paying off smaller loans is delayed.

Comparing methods side by side

There are pros and cons to the debt snowball and debt avalanche methods, so looking at them together can help you determine which one could work best for your situation.

You can refer to this summary to see which method will work best for you: 

Depending on your approach to money, either the debt snowball or avalanche method could work for you.

How paying down debt can be good for you

You may already know that paying off higher-interest debt can be a critical aspect of financial health. But it could also improve your mental well-being. One survey from the American Psychiatric Association showed that 59% of adults said they were anxious about their personal finances.¹  Paying down balances, however you do it, can feel like a weight is slowly lifting from your shoulders. 

3 keys to debt management success

No matter which debt payoff method you choose, there are just a few more things to keep in mind:

1. Be honest with yourself. Ask yourself: How much motivation do I need? Would a quick win help to keep going? There’s no right or wrong answer. Whatever works best for you is the method to use.
2. Pick a method and stick to it. The most important thing you can do to succeed is to keep going.
3. Don’t take on more debt. Be sure not to increase the amount of money you owe. It’s hard to pay off a credit card balance if you’re adding to it.

In the end, your dedication to paying off debt may give you peace of mind and open up new financial possibilities. 

Curious about debt consolidation?

If you’re managing several higher-interest balances, you might be able to consolidate them into one lower-rate personal loan. It could mean saving money on interest and making your monthly payments more manageable. Moreover, it might help ease any anxiety you may be feeling. 81% of surveyed customers said taking out a Discover® personal loan to consolidate debt reduced their stress.

Want to know how a debt consolidation loan could help you pay off debt faster?