Debt Snowball vs. Debt Avalanche

If you're exploring options to pay off debt, it helps to understand the difference between the debt snowball vs. avalanche. Both are designed to help prioritize which debt to focus on first. But there are important differences to know about so you can manage your personal finances most effectively during the debt payoff process.

Here's what you need to consider when deciding whether the debt snowball vs. avalanche method of debt payoff is best for you.

What is the debt snowball method?

The debt snowball method is a debt repayment approach that focuses on paying off the smallest balance first. This debt repayment method involves doing the following:

• Making the minimum payment on all debts.
• Making extra payments on the debt with the lowest balance.
• After the smallest debt is paid off, rolling that entire payment you were making on that debt to the loan or credit card with the next lowest balance.
• Repeating until all debt is paid off.

The big benefit of the debt snowball method is that it should help you stay motivated. As you repay each debt in full, you'll be excited to continue your repayment plan. But the downside is, you could end up paying more in interest. If the smallest balance has a lower rate, you'll have your high-interest debts for longer before paying them down.

READ MORE: What Is the Debt Snowball Method and How Does It Work?

RELATED: See The Ascent's debt snowball calculator to see which debts you should pay off first.

What is the debt avalanche method?

The debt avalanche method prioritizes your debts with the highest interest rate first. It involves:

• Making minimum payments on all debts.
• Making extra payments on the debt with the highest interest rate.
• Rolling that entire payment over to the debt with the next highest rate, once each loan or credit card debt has been paid in full.
• Repeating until you've paid off all debt.

The debt avalanche method allows you to focus on eliminating high-interest debt -- the most expensive debt -- ASAP. The downside is that if your high-interest debt has a very high balance, it could take a long time to pay it off. The extended payoff time may make it more difficult to stay motivated.

READ MORE: What Is the Debt Avalanche Method and How Does It Work?

Key differences between debt snowball vs. debt avalanche method

The two big differences between the debt snowball vs. debt avalanche method are:

• Which debts you focus on repaying first.
• How much total interest you'll pay over time.
• Whether you're focused on reducing costs or need extra help staying motivated.

The debt avalanche method should cost you less in the long term because you're eliminating the most expensive debt first. But if you lose focus on debt payoff because it feels like you aren't making any real progress, it could end up costing you more.

Cost of debt snowball vs. debt avalanche method

It's helpful to consider the total cost of debt payoff using both the debt snowball vs. debt avalanche method when deciding which approach to take. For example, say you have $200 extra to put toward debt payoff each month and you have the following debts:

• A $10,000 loan balance with a 15% interest rate and $225 minimum monthly payments.
• A $5,000 loan balance with an 8% interest rate and $85 minimum monthly payments.
• A $1,000 loan balance with a 4% interest rate and $20 minimum monthly payments.

If you used the snowball method, you would pay off the $1,000 loan first, then the $5,000, then the $10,000. You'd be out of debt in 38 months and pay a total of $19,621. If you used the avalanche method, you would pay off the $10,000 loan, then the $5,000 loan, then the $1,000 loan. You'd pay back your debt in 36 months and pay a total of $18,854.

Which debt payoff method is best for you?

The right debt payoff approach depends on your goals and your financial discipline.

• If you want to pay the least amount of interest possible and are confident you'll stick to your debt payoff plan, the debt avalanche is likely the better choice.
• If you're worried about staying on track and feel you need extra help sticking to your payoff plan, the snowball may be the better option. Although it theoretically costs more, if you're more motivated with this approach, it may end up costing you less in the end since you'll stay on track when you otherwise might not.

If you are considering the debt snowball to help you stay focused, think about whether other approaches could work to increase your motivation. This could involve using a debt payoff app to track progress. Or it could mean finding an accountability partner who you share your payoff progress with.

READ MORE: Best Debt Payoff Apps

Alternatives to the debt snowball vs. debt avalanche

Understanding the difference between the debt snowball vs. avalanche method is helpful if you need to decide how to prioritize debt payoff. But there are other options besides choosing one of these two payoff approaches. For example, consolidating debt could also be a solution. It involves taking out one new loan to repay most or all of your existing debt.

Debt consolidation could lower your interest rate if you qualify for a more affordable consolidation loan. And it eliminates the problem of which debts to pay off first since you'll have one big loan to pay.

You should carefully consider all of the available options to decide what steps to take to maximize your chances of successfully becoming debt free.

Additional resources

• Should You Refinance to Pay Off Debt?
• Credit Card Debt: What You Can Do to Get Out
• How to Get Out of Payday Loan Debt Now
• Study: The Psychological Cost of Debt