Debt snowball vs avalanche: which pays off debt faster and cheaper

The avalanche method, which pays the highest-rate debt first, costs less interest. The snowball method, which pays the smallest balance first, clears individual accounts sooner, and many people find that motivating. In the example below, both methods clear all three debts in month 25 on the same budget, but the avalanche costs 61.09 less in interest (1,649.71 against 1,710.80).

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The two methods

Both methods start the same way. You pay the minimum on every debt each month, and you put all the extra money toward one target debt. When that debt is cleared, its minimum payment does not disappear. It rolls into the next target, so the monthly amount you throw at debt keeps growing.

• Snowball: the target is the smallest balance, whatever its rate.
• Avalanche: the target is the highest interest rate, whatever its balance.

A worked example with three debts

Say you have 450 a month to put toward three debts. The minimums add up to 270.

Debt	Balance	Annual rate	Minimum payment
Card A	800	22%	30
Card B	3,000	29%	90
Card C	5,500	12%	150

Interest is charged each month as balance × annual rate ÷ 12, and then your payment is taken off. Each month, the 180 above the minimums goes to the target.

• Snowball order: A, then B, then C.
• Avalanche order: B, then A, then C.

Month by month, the first steps look like this. Each row shows what is still owed after that month's payment, and the total interest charged so far.

After month	Snowball: still owed	Snowball: interest so far	Avalanche: still owed	Avalanche: interest so far
1	8,992.17	142.17	8,992.17	142.17
4	8,038.61	538.61	8,032.13	532.13
10	5,968.61	1,168.61	5,935.27	1,135.27
16	3,636.00	1,536.00	3,580.15	1,480.15
25	0	1,710.80	0	1,649.71

The two methods charge the same interest in month 1, because interest is added before any extra money goes in. The gap opens from month 2, when the avalanche's extra payments start cutting the balance with the 29% rate.

Milestone	Snowball	Avalanche
Card A cleared	Month 4	Month 16
Card B cleared	Month 16	Month 14
Card C cleared	Month 25	Month 25
Total interest	1,710.80	1,649.71

Snowball clears a card sooner, in month 4 against month 16. Avalanche spends less on interest. Paying only the minimums takes 69 months and 4,866.26 of interest, so either method is far better.

Budget matters as much as order. At 600 a month, both methods finish in 18 months, and the avalanche saves 37.99 (1,145.83 against 1,183.82).

Why avalanche costs no more interest

With a fixed monthly budget, each extra dollar stops the most future interest when it goes to the highest rate, because that balance is the one charging the most per dollar each month. In a standard schedule with fixed payments, the highest-rate-first order is the one that minimises interest. In our check of 3,000 random sets of two to four debts, avalanche never cost more than snowball by more than a cent.

Avalanche is the cheapest order, but it is not always the best one for you. Its advantage is a few dollars in this example, and it can be larger when the rates differ widely.

Why snowball can still help

Snowball is not just a mistake. A 2012 study by David Gal and Blake McShane in the Journal of Marketing Research looked at records from nearly 6,000 clients of a debt settlement firm. It found that closing accounts predicted eventual debt elimination whatever the balances of those accounts. The study is observational, based on one firm's data, and does not compare snowball and avalanche head to head. The authors suggested that people be told both the cheapest order and the psychological benefit of closing small accounts.

In practice, pick the order you will keep following. If the rates are close, snowball's early wins may be worth more than the small interest gap. If one debt charges a much higher rate, avalanche is the better choice for most people.

Rolling minimums and balance transfers

Both methods depend on paying every minimum on time. A missed payment adds fees and can raise your rate, which undoes the plan.

A balance transfer moves debt to a card with a lower promotional rate. Check three things before you do it: the transfer fee, which is usually a percentage of the amount moved; how long the promotional rate lasts; and the regular rate that applies afterwards. Compare the total cost of the transfer with the cost of your current plan, and stop using the old card for new purchases.

To see the effect of a single loan, use the loan calculator. To see how interest builds over time on savings, the compound interest calculator shows the same mechanism working the other way. For the difference between a stated rate and the full yearly cost, read APR vs interest rate.

Quick answers

Which method saves more money? Avalanche, when the rates differ. In the example it saved 61.09 with the same budget.

Which method is better for me? Choose snowball if you need early wins to keep going, and avalanche if you are confident you will stick to the plan. The best method is the one you keep paying.

Does the order matter if all my debts have the same rate? Not for total interest. Then the choice is about motivation and which accounts you want to close first.