Avalanche vs Snowball: Which Debt Payoff Fits You?

The avalanche method puts extra money on the debt with the highest interest rate first. The snowball method puts it on the smallest balance first. FCAC says the highest-rate approach lowers the interest you pay, and the smallest-balance approach can keep you motivated but may cost more. With either, keep making the minimum payment on every debt.

List your debts. Pay the minimum on all of them. Then put every spare dollar on one target debt. Avalanche picks the highest interest rate. Snowball picks the lowest balance. When a debt is paid off, move its payment to the next target.

FCAC says that paying the highest interest first means you pay less interest, and that paying the lowest balance first may cost you more over time but can give quick wins. It also says to deal with any past due accounts first.

Four debts: $3,000 at 22% (minimum $90), $8,000 at 19.99% ($200), $1,500 at 12% ($50) and $5,000 at 24.99% ($150). The minimums add up to $490, and the budget is $800 a month. In our calculator, the avalanche order is 24.99%, 22%, 19.99%, then 12%. Snowball order is $1,500, $3,000, $5,000, then $8,000. Both finish in 28 months. Avalanche costs about $4,517 in interest and snowball about $4,888, a gap of about $371.

If saving the most interest matters most, avalanche is cheaper. If small early wins help you stick with the plan, snowball may be easier to keep going. The gap depends on your own balances and rates, so run your own numbers.

A creditor may offer to combine your debts into one loan. Compare the full cost first with our debt consolidation calculator. Be careful with debt settlement companies, and read our guide to their traps.