Debt snowball or avalanche: what is the difference?

In plain words

The avalanche method means paying the minimum on every debt, then putting extra money toward the debt with the highest APR, or yearly interest rate. It is like cutting the fastest-growing part of a debt first.

The snowball method means paying the minimum on every balance, then putting extra money toward the smallest balance first. It is like clearing the easiest hill before climbing bigger ones. It can build motivation, but the method that feels best may cost more than the one that costs least.

Knowing this helps your extra money make a debt disappear sooner instead of feeding interest on every debt. If you spread the surplus evenly, you may keep paying interest across all debts and delay closing one.

Two worked examples

Avalanche: highest APR first

Minimum on all, surplus on highest-APR debt. Lowest total interest paid. Money aimed at the highest rate kills the fastest-growing part of the debt.

You meet this idea when you have several debts, such as a credit card, a personal loan and a student loan. It also comes up when a debt app or adviser shows different annual percentage rates for each debt.

Omar has a store card with a high rate, a car loan with a middle rate and a small family loan with a low rate. This month he pays the minimum on the car loan and the family loan, then puts all his spare cash on the store card. When the store card is cleared, he moves that same extra cash to the car loan.

Snowball: smallest balance first

Minimum on all, surplus on smallest balance. Wins momentum, costs a bit more. The snowball costs a little more in interest; some people find the early closed accounts help them keep going.

Nina has three debts, and she pays the minimum on each one. Any extra cash goes to the one with the smallest balance, a little phone bill she owes. She makes the last payment on it and crosses it off her list. The money she was putting there now goes to the next smallest debt.

Where you’ll meet it

• Fees turn small loans into big onesThe sticker rate is the advert; fees are the price — total cost is the only honest comparison.
• A monthly rate times 12 hides the real costTwo numbers can describe the same loan; the smaller-looking one leaves out interest on interest.
• Paying on time counts most in your scoreLenders read your past as your future — one reported miss speaks louder than a year of on-time payments.

Related terms