Should You Use the “debt Avalanche” or “debt Snowball” Method to Pay Off Debt?
Facing multiple debts can feel absolutely overwhelming. With hefty monthly payments and high interest rates, it’s no wonder many people feel paralyzed when it comes to taking control of their finances. Luckily, there are two proven methods that can help you systematically pay off your debts: the debt avalanche and the debt snowball. But how do you decide which approach is right for your unique situation?
Debt Avalanche Method
The debt avalanche method aims to pay off debts in order from highest interest rate to lowest. This makes the most mathematical sense because you’ll save the most money over time on interest payments.
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Make the minimum payments on all your debts.
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Put any extra money you have toward the debt with the highest interest rate.
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Once that debt is paid off, move the amount you paid on it to the debt with the next highest interest rate.
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Repeat until all debts are paid off.
The main advantage of debt avalanche is that it saves the most money in the long run because it targets the most expensive debt first. This can be especially helpful if you have one or two debts with significantly higher interest rates than the rest. If you eliminate them first, it can make a big difference in the total amount you owe.
Debt snowball method
On the other hand, the debt snowball method focuses on paying off your debts in order from smallest balance to largest. The idea is that earning “wins” by paying off small debts quickly can provide much-needed motivation to keep going.
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Make the minimum payments on all your debts.
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Put any extra money you have toward paying off the debt with the smallest balance.
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Once that debt is paid off, roll over the amount you paid on it to the debt with the next lowest balance.
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Repeat until all debts are paid off.
The main benefit of the debt snowball is the psychological boost you get from crossing debts off your list one by one. This can be incredibly effective, especially if you have a lot of small debts that seem overwhelming. Paying them off as quickly as possible can give you the impetus to continue tackling larger debts.
Other debt repayment strategies
While the avalanche and snowball methods are the most popular, there are other strategies to consider:
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Debt consolidation loan . This involves taking out a new loan with a lower interest rate to pay off multiple debts at once. This can simplify your payments and save you money on interest.
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Debt management plan. This includes working with a credit counseling agency to negotiate lower interest rates and payments with your creditors. They process payments for you.
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Hybrid approach. You can also combine elements of avalanche and snow methods. For example, you can focus on the debts with the highest interest rates first, and then pay off smaller debts quickly to get those “wins.”
Choosing the method that’s right for you
So how do you decide which debt repayment method is best for your situation? There are several key factors to consider.
Interest rates
If you have one or two debts with significantly higher interest rates than the rest, the avalanche method will likely save you the most money in the long run.
Debt balances
If you have a lot of small debts, the snowball boost may be just what you need. But if you have several large debts of the same size, avalanche may be a better choice.
Your personality
Some people get very motivated by crossing things off their list and achieving “wins.” If this sounds like you, the snowball method may be right for you. Others may find the logical and mathematical approach of the avalanche method more convincing.
Ultimately, the best debt repayment strategy is one that you actually stick to. Take a close look at your specific debts, your financial situation and your personality; then choose the method that is most likely to help you stay engaged and on track. Whatever approach you choose, the crucial first step is to be proactive about paying off your debts .