Debt Snowball vs Avalanche Method: Which Debt Payoff Method Actually Leads to Better Outcomes?

Americans aren’t strangers to debt. The average consumer owes a little over $6,000 on credit cards, per the Federal Reserve, which is problematic given the rate at which credit card interest can accrue.

If you’re juggling debt, it may be taking both an emotional and financial toll on you. Mentally, it can be a hard thing walking around knowing you owe so much money. And financially, every dollar you lose to interest is a dollar you can’t invest for toward your long-term goals, like retirement. So it’s important to try to shed your debt as effectively as possible.

There are a couple of common strategies consumers can use to pay off debt: the snowball method and the avalanche method. Here, we’ll compare these two options so you can see which one may be the most suitable for you.

How the debt snowball method works

With the debt snowball method, you’re paying off your debts in order of size, starting with the smallest. What you’d do with this approach is make a list of all of your debts and put as much money as possible into the smallest one, paying just the minimum amounts toward your other debts. Then, once that smallest debt is paid, you’d apply more of your money toward the next smallest debt, and so forth, until all of your debts are gone.

The benefit of the snowball method is that it’s easy to follow, and it can be a rewarding way to tackle debt from a mental standpoint. That’s because if you’re tackling small debts first, you’re potentially seeing your efforts pay off as those debts are eliminated one by one. However, the snowball method may not save you as much money as the avalanche method, since you’re tackling your debts by order of size instead of interest.

How the debt avalanche method works

With the debt avalanche method, you’re paying off your debts in order of highest interest rate to lowest. What you’d do here is make a list of your debts in that order, and then put as much money as possible toward your highest-interest debt first. Once that balance is gone — however long it takes — you’d move on to the debt with the next-highest interest rate.

The upside of the avalanche method is that it can save you a lot of money by eliminating your costliest debts first. But from a mental standpoint, this method can be tough, because you may not see the same quick results as with the snowball method. And if you lose your motivation, you might give up on getting out of debt altogether.

Which method is right for you?

Both the snowball and avalanche method are effective ways of ridding yourself of debt. So you’ll need to be honest with yourself when deciding which one to employ.

If you know you’re likely to get discouraged if you don’t start to see your debts disappearing quickly, then the snowball method may be optimal, even if it doesn’t save you the most money. But if you have near-term financial goals you’re trying to meet, like buying a house, then you may want to go with the avalanche method, since it could produce the most savings on interest.

One thing you may want to do is consult a financial advisor if you’re overwhelmed with debt and aren’t sure how you should pay it off. An advisor can help you come up with a plan based on your monthly expenses, spending habits, and goals.

Another option to consider is that it may be best to consolidate your debt into a personal loan and pay off that single balance over time. Doing so could save you money on interest and make the whole process easier, because instead of keeping tabs on multiple debts and payment due dates, you’re paying off a single debt on a predictable schedule.

A financial advisor can help you decide if debt consolidation is right for you. And part of that will boil down to the interest rate you’re able to get on a personal loan. But it’s an option worth considering if the idea of juggling different debts is daunting and you’re already having trouble keeping up with your various payment schedules.