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DEBT SNOWBALL VS DEBT AVALANCHE
What is the best method to pay off debt? That’s a question I hear often.
If you’ve ever Google’d that question (maybe that’s how you found me) then you may have seen lots of talk about two popular methods. The Debt Snowball and Debt Avalanche.
One method has you paying off your debts starting from the smallest balance to largest balance a.k.a. The Debt Snowball.
The other one has you paying off your debt starting with the highest interest rate to the lowest interest rate a.k.a. The Debt Avalanche.
Debt Snowball vs Debt Avalanche Explained
By the time you’re done reading this, you’ll know how to use both methods and be able to determine which method is best for you.
BUT before we go into the two different methods to pay off your debt in more detail, I want you to be aware of the total amount of debt you have!
Both methods will require you to list out your debts so you’ll want to know all of the balances on your debts, their interest rates, and the minimum payments you’re required to make on them each month.
NOTE: We’re not counting your mortgage debt when paying down debt. Mortgage debt can be dealt with after all other debts are paid off. See How to Pay off Your Mortgage Faster With Two Simple Steps for tips.
Use the debt tracker in Printable Deluxe Budget Binder or just grab a piece of paper and start writing them down.
Go online to your accounts or call your account holders if you can to get the most accurate balances and information. You don’t want to guess on this.
Once you see all your debt on paper, you can begin to make a plan to get it all paid off.
Let’s go over the two methods for paying off your debt in more detail now.
WHAT IS THE DEBT SNOWBALL?
The debt snowball was made famous by Dave Ramsey and for good reason.
If you’ve never heard of Dave Ramsey, I highly recommend you check out The Total Money Makeover.
The debt snowball method is a debt reduction strategywhere you pay off your
When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest balance.
DEBT SNOWBALL STEPS:
STEP 1:List your debts from the smallest balance to the largest balance regardless of the interest rate. Don’t be concerned with interest rates, unless two debts have a similar payoff balance. In that case, list the one with the higher interest rate first.
STEP 2:Make minimum payments on all your debts except the smallest. Attack that smallest debt by paying as much on it as you possibly can. Once you pay one debt off, take the money you were paying on that one and add it to the minimum payment of the next debt. As the snowball rolls over, it picks up more snow. Get it?
IMPORTANT: Never use the freed up money from paying off a debt for anything else besides paying off the next debt. If you do, you will defeat the purpose of the debt snowball. Once you pay off all your debts then you can do what you want with that money.
STEP 3:Every time you pay off a debt, cross the debt off. You will start to feel how close you’re getting to becoming debt-free!
This method works because you feel a sense of accomplishment each time you pay off a debt. You can check off that debt as paid off and move on to the next much quicker than you would with other methods.
The action of checking off a debt as paid is so motivating and is the main reason why this method works so well. It gives you the momentum to keep on paying off more debt.
See Rachel Cruz explain in the below video how to pay off debt fast using the debt snowball and why it makes sense to use this method.
WHAT IS THE DEBT AVALANCHE?
The Debt Avalanche is a better way to pay off debt from a math perspective.
It makes sense math wise to go with this method because you’ll end up paying less interest in the end.
Just typing that I hear Dave Ramsey’s voice inside my head saying and I quote “If you were doing math you wouldn’t be in debt“.
He also says ” Debt is a behavior problem, not a math problem“. And while I do agree, for the most part, I still think there are some people and some circ*mstances where the Debt Avalanche is the better approach.
In this
The Debt Avalanche is perfect for people who are REALLY ready to pay off their debt and don’t need the quick wins that the debt snowball gives you in order to stay motivated.
If you’re the type of person who can stick with a goal and go hard then this is right for you. If you tend to give up or need constant motivation and quick wins I highly recommend going with the Debt Snowball.
DEBT AVALANCHE STEPS:
STEP 1: List your debts from the largest interest rate being charged to the lowest interest rate regardless of the balance.
STEP 2: Make minimum payments on all your debts EXCEPT the debt with the largest interest rate. Attack that debt by paying as much on it as you possibly can. Once you pay one debt off, take what you were paying on that one and add it to the minimum payment of the next debt.
STEP 3:Every time you pay off a debt, cross the debt off. You will start to feel how close you’re getting to becoming debt-free!
Now you may be in the situation where your smallest debt is your highest interest rate and that will put you in the best position to get your debt paid off quickly because you’ll get the benefits of both methods.
DEBT SNOWBALL OR DEBT AVALANCHE: HOW DO YOU CHOOSE?
If you want to see how fast you can pay off your debt using each method and how much interest you’ll end up paying, in the end, I recommend using the Undebt.it Debt Calculator.
The Undebt calculator will let you calculate how best to pay off your debt. You can compare both methods with this calculator.
After putting in your numbers you will instantly get a result so you can see how much interest you’re saving and how much faster you can pay off your debt using each method.
Simulate both payoff methods using the calculator here. There’s also no signup required to use the calculator. You can sign up for a free account if you want to use their more advanced features.
NEED HELP FINDING MONEY TO PAY OFF DEBT? CHECK OUT THESE BLOG POSTS WHERE I GO IN MORE DETAIL ON BUDGETING AND PAYING OFF DEBT:
- How to Pay off Debt When You Have No Money
- How to Create an Effective Budget
- How to Get Rid of Cable and Still Watch What You Want
- 101 Ways to Save Money
- How to Live on One Income and Thrive
- The Best Ways to Save Money on Groceries
Questions? Comments? Leave them below!
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