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debt snowball or debt avalanche, which is better?

Debt Snowball Or Debt Avalanche? Which Is Better?

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You have decided you are ready to finally get out of debt and get rid of your financial stress! Congratulations, I could not be happier for you! Now that you have made the decision to become debt free, should you start with the debt snowball or the debt avalanche? I’ll break it down for you to help make the choice easier.

Before we dive too deep into these debt payoff processes, let’s discuss why you even need a process. If you have mounting debt and are looking for a way out, we need to look at the reason you have debt in the first place.

Understand Where Your Debt Came From

People get into debt for many different reasons. Some people have an unexpected medical incident and now owe thousands of dollars in medical bills. Others have spent their way into debt and have no idea how their spending got so out of control. Either way, I’m not here to fault you. The fact that you are here ready to destroy your debt is awesome!

If your debt resulted in no fault of your own, I empathize with you and will help you get out. If your debt resulted from a lack of structure or planning, I also know how slippery that slope can be. However, the way out of debt in both scenarios is exactly the same.

You need a plan in order to get out of debt and to stay out of debt. By following a set of guidelines or rules, we can prepare for the worst while hoping for the best. Plans and structures keep us moving towards a goal or vision. When you lose track of where you are going, a plan will get you back in line.

Before you start paying off debt, you need a budget. Refer to my related article, Do These 2 Things Before You Start Paying Off Debt! to get your foundation started before you start paying off debt.

The Debt Snowball Explained

debt snowball

The debt snowball and debt avalanche payoff methods are plans. They are structures for you to follow in order to achieve your debt free dreams. Honestly, either plan will work but one of them may be very wrong for you while the other one is right.

If you have heard of the debt snowball, you have probably heard of Dave Ramsey. I give Dave full credit for the debt snowball because it has helped a lot of people. However, just because it has worked, does not mean it is the best way.

How The Debt Snowball Works

  • List out all your debts in order of amount owed
  • Start at the smallest debt up to the largest debt
    • For Instance:
      • Credit Card #1 – $300 (19% Interest)
      • Credit Card #2 – $2,000 (17.5 % Interest)
      • Vehicle #1 Loan – $6,000 (4.21% Interest)
      • Credit Card #3 – $7,000 (17% Interest)
      • Credit Card #4 – $10,000 (18% Interest)
      • Vehicle #2 Loan – $24,000 (4% Interest)
      • Student Loans – $70,000 (7% Interest)
  • After the debts are lined up, you pay the minimum payment on all debts except for the lowest amount. You pay the lowest debt off as fast as you can
  • As the lowest debt is paid off, move to the next one and so on until you have paid off all the debt
    • Credit Card #1 – $300 (19% Interest)
    • Credit Card #2 – $2,000 (17.5 % Interest)
    • Vehicle #1 Loan – $6,000 (4.21% Interest)
    • Credit Card #3 – $7,000 (17% Interest)
    • Credit Card #4 – $10,000 (18% Interest)
    • Vehicle #2 Loan – $24,000 (4% Interest)
    • Student Loans – $70,000 (7% Interest)

Advantage Of The Debt Snowball

  • Great to help people stay motivated
    • Quick wins at the beginning to help people see success and keep moving
    • Provides a clear plan on how to get out of debt
  • Perfect for people who easily lose motivation or have trouble completing tasks

Disadvantage Of The Debt Snowball

  • Takes longer to get out of debt compared to the Debt Avalanche
  • Pay more in interest with this method than the Debt Avalanche
  • Ignores interest rates which can tack on more debt to the larger loans

The Debt Avalanche Explained

debt avalanche

The Debt Avalanche is mathematically the best way to pay off debt. It focuses on paying off debt the quickest but requires a substantial amount of discipline. If you are driven and focused, this may be the plan for you.

How The Debt Avalanche Works

  • List out all your debts in order of interest rate
  • Start with the largest interest rate down to the smallest interest rate
  • For Instance, Using Our Previous Debts:
    • Credit Card #1 – $300 (19% Interest)
    • Credit Card #4 – $10,000 (18% Interest)
    • Credit Card #2 – $2,000 (17.5 % Interest)
    • Credit Card #3 – $7,000 (17% Interest)
    • Student Loans – $70,000 (7% Interest)
    • Vehicle #1 Loan – $6,000 (4.21% Interest)
    • Vehicle #2 Loan – $24,000 (4% Interest)
  • After the debts are lined up, pay the minimum payment on all debts except for the one with the highest interest rate. Pay the highest interest rate debt off first as fast as you can
  • As the highest interest rate debt is paid off, move to the next one and so on until you have paid off all the debt
    • Credit Card #1 – $300 (19% Interest)
    • Credit Card #4 – $10,000 (18% Interest)
    • Credit Card #2 – $2,000 (17.5 % Interest)
    • Credit Card #3 – $7,000 (17% Interest)
    • Student Loans – $70,000 (7% Interest)
    • Vehicle #1 Loan – $6,000 (4.21% Interest)
    • Vehicle #2 Loan – $24,000 (4% Interest)

Advantage Of The Debt Avalanche

  • The quickest way to pay off debt
    • By eliminating high-interest rates first, it cuts down on the amount of debt being added to the other loans
    • Saves you money in the long run
    • Provides a clear plan on how to get out of debt
  • Perfect for people who are disciplined and don’t quit easily

Disadvantage Of The Debt Avalanche

  • Real danger of losing motivation if it takes a while to pay off debt at the beginning
  • You don’t always see immediate “wins”
  • Requires discipline

Should I Choose The Debt Snowball Or The Debt Avalanche?

should i choose the debt snowball or debt avalanche

In order to be successful in your debt free journey, you need to seriously reflect and determine your personality. If you easily lose motivation and have trouble finishing tasks you start, I would strongly recommend you go with the Debt Snowball.

If you go with the Debt Snowball, it will take you longer to pay off the debt and you will pay more money in interest. However, if you start the Debt Avalanche and quit halfway through, you will not get out of debt.

If you are a driven and determined person who refuses to quit, I absolutely recommend you go with the Debt Avalanche. You will pay off your debt faster and pay much less in interest by the time you are done.

To choose the correct system, you need to be honest with yourself and your personality. If you are unsure which system would work better for you, go the safer route and start the Debt Snowball.

With the Debt Snowball, you will see results much faster. In theory, the quicker gratification of paying off a loan will keep you motivated.

Pick A Plan And Stick To It

Pick a plan and stick with it

Whichever you choose to pay off your debt, set up a plan in order to be successful. Hoping to become debt free without a plan is setting yourself up for failure. As the saying goes, “Failing to plan means you’re planning to fail.”

Give yourself the best chance of success by following one of these two processes and stick with it. You can do this and I would love to help you on your journey!

Please subscribe to my blog by email below and let me know if you have any questions!

Also, before you start paying off your debt, you absolutely need to have a budget in place. If you need help with starting a budget, head over to my article on budgets to get started.

Keep at it my friends, you work too hard to be this broke!

-Ryan

 

About The Author

Visit The Authors Website | Other Posts

Ryan Luke is a father of three, a husband, finance blogger, and full-time police officer. Through proper budgeting and money management, they have been able to live off one income and build wealth at the same time. As an active member of the personal finance community, his goal is to educate and help people get out of debt and build wealth!

6 thoughts on “Debt Snowball Or Debt Avalanche? Which Is Better?”

  1. As always, your articles are incredibly helpful. I thought I could avalanche it but ended up with the snowball method. The end of last year I paid off my credit card and this year already I paid off my car. Now my only ball-and-chain is my student loan. It’s important to be flexible and at least work towards something.

    1. Thank you for the kind words! I am so proud of your accomplishment to get rid of both your car and credit card! I know when I did that it felt like I received a huge raise. It’s amazing how debt keeps us down.
      I can hardly wait to hear when you destroy those student loans 🙂

    2. Great article.One way to eliminate rising interest when using the debt snowball method could be to keep switching debts with high interest to 0% credit cards, don’t you think?

      This would br more applicable if most of ones debt is on credit cards of course.

      1. Hey Sam, yes transfering money to 0% interest cards is a great way to avoid paying interest but many of these cards have transfer fees. The fees may be lower than you would normally pay but it’s something to pay attention to. Also, using this strategy can be risky if you forget to move your balance. Often these 0% interest cards have extremely high interest rates after the introductory period. If you trust yourself to keep on it and never forget to transfer, it can work – but it’s a lot to pay attention to.

  2. Thank you Ryan, I am working hard to decide which method I’m going to use to pay off my student loan for my doctorate. I will say that I got an award earlier this year that was about $5,000 and I just paid off one loan that was about $5,000. It wasn’t the highest or the lowest it was just one that equal the amount of the award that I got. I feel fantastic about that. One loan down up, a bazillion to go.

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