Debt can be a stressful topic for people to deal with. Regardless of how it was accumulated, repayment can seem impossible. Many will offer advice completely unrelated and unhelpful to your bottom line. You may have heard to cancel all your subscriptions, which has nothing to do with your debts. Or maybe the lazy advice of stripping your daily life to the bare essentials and “just put everything toward the payoff,” which at a macro level is not necessarily wrong but lacks the proper substance.
You may have heard the terms debt snowball or debt avalanche. This article aims to clarify these two concepts and help you decide which to use. Spoiler alert: I’m pro-avalanche.
Defining The Terms
I’ll keep this simple. For Avalanche, you pay off the highest interest rates first, and Snowball pays off the lowest balances first.
Done. Simple.
Why I Prefer The Avalanche
But seriously, there are plenty of reasons to refrain from entertaining the snowball method.
First and foremost, the Avalanche is mathematically the correct choice.
Typically, when you hear someone suggest the Snowball, at some point, they will mention paying off the smallest debts first will give you moral victory. Hopefully, I don’t have to explain how bad of an idea that is when you are trying to change your financial situation for the better, and you know the Avalanche would pay it off faster.
The Avalanche is focused on minimizing your total paid interest. So, not only will you finish faster, but you will also minimize the interest paid.
When A Snowball May Make Sense
Alone, the Snowball does not make sense to me. However, a hybrid approach could make some sense.
For example, let’s say I have five debts.
Debt 1 – $15,000 at 10%
Debt 2 – $25,000 at 12%
Debt 3 – $20,000 at 15%
Debt 4 – $3,000 at 2%
Debt 5 – $1,500 at 4%
I could argue that I would want to pay off Debt 5 first and, depending on income, Debt 4 as well, just to simplify the payments I need to make. It would reduce the number of due dates I need to remember, especially if the total payoff will take a few years, and I can handle Debt 5 and/or Debt 4 in two or three paychecks. Notice I didn’t say I would get a moral victory.
Regardless of my opinion, a debt snowball is still better than no structure in your payoff, so the decision is yours.
Luckily, with BudgetBudgets, we have a free debt payoff calculator, and you can compare the results of Snowball and Avalanche right there.
