Debt Snowball vs. Debt Avalanche

20 December 2022
Category: Uncategorized
20 December 2022, Comments: Comments Off on Debt Snowball vs. Debt Avalanche

Photo of cheerful loving young couple using laptop and analyzing their finances with documents. Look at papers.

Student loans, credit card debt, and car payments, oh my! The list of debts you may owe seems never ending and always looming. Don’t let withstanding balances overwhelm you to the point where you begin withholding paying the minimum payment. No matter how high the debt or the interest is, there are ways to successfully and timely pay off what is due.

There are two popular methods you can use to reduce your debt – the Debt Snowball Method and the Debt Avalanche Method. Each one aggressively attacks what you owe, but in slightly different ways.


Debt Snowball Method

The snowball method was coined by popular finance expert, Dave Ramsey. When using this method, you begin by listing out all the debts you owe with the outstanding balance and interest rate. Order the loans from the smallest balance to the largest. You pay each of the debts’ minimum payments but put as much extra money as you can manage toward the debt with the smallest balance until it is paid off. Take the money you were putting toward the first debt and target the debt next on the list in the same manner. As you continue the approach, you will be rolling more and more money into each debt as they are paid off. See where the name comes from?


Debt Avalanche Method

The debt avalanche method takes the opposite approach of the snowball method and advocates to pay off debt by getting rid of your debt with the highest interest rate first and then moving on to the next highest. Make your minimum payments on each debt but put as much extra money as you can budget toward the debt with the highest interest rate. This method will take you longer but save you more money in the long run. Ultimately both strategies will help you pay off your outstanding balances.


Which Method Is Right for You?

Neither method is superior to the other. Both work in similar methods and will assist in you reaching your goal of being debt free. When it comes to choosing the one you will use depends on factors like your personality and lifestyle. If you are motivated by small wins and quick progress, the debt snowball may be for you. If you are more analytical, slow pace, and eager to save money, you may want to go with the avalanche approach.







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