Debt snowball vs avalanche (with calculator)

Debt snowball vs avalanche: how each one works

The debt snowball vs avalanche question comes down to one choice: which debt gets your extra money first. Everything else is the same. You list your debts, pay the minimum on each one every month, and put any money you can spare on top of the minimums toward a single target.

The debt snowball sorts your debts from smallest balance to largest. All extra money goes to the smallest one, whatever its interest rate. When it's gone, you take everything you were paying on it and add it to the next smallest. The payment grows as it rolls, like a snowball down a hill.

The debt avalanche sorts your debts by interest rate, from highest to lowest. The interest rate here is the APR (annual percentage rate): the yearly cost of borrowing, as a percentage of what you owe. All extra money goes to the most expensive debt first. When it's cleared, its payment moves to the next highest rate.

Two ideas make both methods work:

1. A fixed monthly budget. You decide on one total amount for debt each month (all the minimums plus your extra) and keep paying it until you're debt-free, even as balances shrink.
2. Rolling over. When a debt is cleared, its minimum payment isn't spent. It joins the pot for the next target. This is why the last debt often disappears much faster than the first.

A worked example with real numbers

The calculator above starts with three debts. They are an example, not a typical household:

That's €10,300 of debt. The minimums add up to €285 a month, and on top of that you pay an extra €200, so €485 goes to debt every month in total.

The snowball targets the store card first (smallest balance), then the personal loan, then the credit card. The avalanche targets the credit card first (highest rate), then the store card, then the personal loan.

The difference is real but not dramatic. The avalanche saves about €502, roughly what one extra month of payments costs, because it stops the 22.9% card from charging interest on a big balance for longer than necessary.

The snowball's advantage is timing. You wipe out the store card in month 4 and the personal loan in month 14. With the avalanche, your first debt only disappears in month 21. For almost two years, it can feel as if nothing is happening, even though you're saving money.

For comparison, if you paid only the €285 of minimums (still rolling them over as debts are cleared), the same debts would take 55 months and cost about €5,200 in interest. The extra €200 a month is what really does the work; the choice of method comes second.

Why the snowball can be worth paying for

Paying more interest on purpose sounds odd. The argument for the snowball is about behaviour: a plan you give up in month eight saves you nothing.

There is some research behind this. In a 2014 working paper, economists Alexander Brown and Joanna Lahey at Texas A&M found that people finished a dull task faster when it was split into parts arranged from smallest to largest. The authors linked this to the debt snowball, but they also cautioned that the extra motivation may not make up for the extra interest. Their experiments used typing tasks in a lab, not real debts, so treat it as a hint about human nature rather than proof that the snowball works better for you.

Which one suits you

The avalanche may suit you if:

• You're motivated by numbers and seeing the total interest fall.
• Your most expensive debt is also large, so the interest gap is big.
• You're confident you'll keep going without quick wins.

The snowball may suit you if:

• You've tried to pay off debt before and lost steam.
• You have several small debts that you could clear within a few months.
• Fewer bills and fewer creditors would make life feel calmer.

When it doesn't matter: if your debts line up the same way by balance and by rate (the smallest is also the most expensive, and so on), both methods pick the same targets in the same order and give exactly the same result. Try it in the calculator: change the credit card balance to €600 and both methods finish in 11 months with the same interest.

Common mistakes

• Paying less once a debt is gone. If you spend the freed-up minimum, you lose the rollover, and both methods slow down a lot. Keep the monthly total the same until the end.
• Missing a minimum to pay more on the target. Late payments usually bring fees and can show up on your credit file. Minimums come first, always.
• Borrowing again while you pay off. New spending on a card you're clearing undoes the plan. Many people remove saved card details from shopping sites while they pay down debt.
• Having no buffer. Without a small emergency fund, the next car repair goes on the card. A few hundred euros set aside first can stop the cycle.
• Ignoring the real rate. Use the APR from your statement or contract, not the rate you remember. Promotional 0% deals end, and the rate after that is what counts.

Where to go from here

The method is one part of the plan. Our guide to paying off debt fast covers how to find the extra money, when consolidation might help, and where to get free help. If you're not sure which debts to tackle at all, read good debt vs bad debt. And to find room in your monthly money for that extra payment, start with how to make a budget.