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Debt Snowball vs. Debt Avalanche: Which One Is Apt for You?

Lyle D. Solomon | December 02, 2022

Summary: Trying to figure out a plan to get out of debt? Find out if the debt snowball or debt avalanche strategy is best for you.

Are you overwhelmed by debt? If so, you might struggle to get out of this situation. To help, you can opt for one of the debt payoff methods:

  • Debt snowball
  • Debt avalanche

Now you may wonder which one is best for you. And that's quite normal. But let me tell you, both the snowball and avalanche methods are effective in repaying debts. And each method has its pros and cons. So, you need to decide which method perfectly suits you and your financial situation.

Here we will discuss the debt snowball and debt avalanche methods to discover which is suitable for you, so you get out of debt asap.

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Debt snowball method

In this method, you'll focus on the debt with the smallest outstanding balance. While you are focusing on this account, you will make minimum payments to other debts until you become debt-free.

Once you pay off the debt with the smallest outstanding balance, target the next one, and so on.

Let's say you owe three debts:

  1. Credit card debt of $5,000 at 13% interest rate
  2. Student loan of $12,000 at 2.5% interest rate
  3. Auto loan of $7,000 at 4% interest rate

According to the debt snowball method, focus on the credit card debt first since it has the smallest outstanding balance. Once you repay the credit card debt, pay off your auto loan (the debt with the second-lowest outstanding balance).

When you are targeting one debt, remember to make minimum payments on all other debts.

Pros and cons of debt snowball method

The biggest pros of the debt snowball method are boosting your motivation in your debt-free journey.

“The math seems to lean more toward paying the highest-interest debts first. But what I have learned is that personal finance is 20% head knowledge and 80% behavior. You need some quick wins to stay pumped enough to get out of debt completely.”, says Dave Ramsey, a financial pundit and a proponent of this method.

You are likely to pay off the debt with the smallest outstanding balance much faster. Once you close that account, it will encourage you to move to the next debt and pay it off.

The problem with the debt snowball method is that you may have to shell out more for making interest payments.

Let's say you owe a high-interest debt with a high outstanding balance amount. According to the debt snowball method, you arrange debts on ascending outstanding balances.

If you continue making minimum payments on the high-interest debt, you will pay more interest.

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Debt avalanche method

With this method, you will pay as much as possible for the debt with the highest interest first. You need to make minimum payments for other debts simultaneously until you pay off all your debts.

Once you pay off the debt with the highest interest rate, target the debt with the second-highest interest rate, and so on.

Let's say you owe a few debts, like:

  1. Credit card debt of $7,000 at 14% interest rate
  2. Personal loan of $5,000 at 6% interest rate
  3. A car loan of $8,000 at a 3% interest rate

According to the debt avalanche method, you first have to pay the debt with the highest interest rate. So, you'll focus on your credit card debt first. But, you still need to make minimum payments toward your personal loan and car loan.

Once you repay your credit card debt, pay off your personal loan, and so on.

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Pros and cons of debt avalanche method

The debt avalanche method helps you save money on interest payments, since you are focusing on the debt with the highest interest rate first.

If you have a huge outstanding debt with the highest interest rate, this method can be the best bet for you.

The flip side of the debt avalanche method is that you may find it hard to stay motivated during your debt-free journey. Usually, high-interest debts have high outstanding balances. So, it may take a considerable time to pay the debt in full.

So, the bottom line is both the debt snowball and avalanche methods are equally effective in repaying debts.

Mathematically, the debt avalanche method can be more effective and help you save money. But constant motivation is also necessary for a successful debt-free journey. So, the debt snowball method can provide you with a psychological boost.

You are the best judge to analyze your debts and financial situation and choose the right debt payoff method.

Author Bio: Lyle David Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of the State Bar of California. In 1998, he graduated from the University of the Pacific's McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for the Oak View Law Group in Rocklin, California.

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