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Debt Avalanche vs. Debt Snowball: What's the Difference?

Updated: Mar 4


Debt Snowball vs Debt Avalanche
Debt Snowball vs Debt Avalanche


Debt can be overwhelming and stressful, but it is possible to overcome it. There are several methods to pay off debt, but the two most popular methods are the debt snowball and debt avalanche. In this article, we will explore the differences between the two methods and help you decide which method is best for you.


The debt snowball method involves paying off the smallest debt first, regardless of the interest rate. Once the smallest debt is paid off, the individual then moves on to the next smallest debt and so on. The idea behind this method is that paying off small debts first can provide a psychological boost and increase motivation to continue paying off debts.


The debt avalanche method, on the other hand, involves paying off the debt with the highest interest rate first, regardless of the balance. This method is based on the idea that paying off high-interest debt first will save the most money in the long run.


One of the main pros of the debt snowball method is that it can provide a sense of accomplishment and motivation as individuals see their debts being paid off one by one. Additionally, this method is simple and easy to understand, making it a good option for those who are new to debt management.


On the other hand, the debt avalanche method can save individuals more money in the long run as they will be paying off high-interest debt first which accrues more interest over time. Additionally, this method is also more logical and mathematically sound as it prioritizes paying off the most expensive debt first.


One of the cons of the debt snowball method is that it may not be the most financially efficient option as individuals may end up paying more in interest over time. On the other hand, the debt avalanche method can be overwhelming for some as it may take longer to see progress, and it can be harder to stay motivated.





Debt Snowball Method

The debt snowball method is a debt reduction strategy that involves paying off debts in order of smallest to largest balance, regardless of interest rate. This method is all about motivation and momentum. By paying off your smallest debts first, you will gain a sense of accomplishment that will motivate you to keep going. The idea is that once you pay off a debt, you will use the money that you were putting towards that debt to pay off the next smallest debt on your list, and so on until all your debts are paid off.


Pros:

  • It is effective for people who need motivation to pay off debt.

  • People feel a sense of accomplishment as they pay off small debts first.

  • The method is simple and easy to understand.

Cons:

  • It may not be the most efficient way to pay off debt since you may be paying more in interest in the long run.


Debt Snowball example:

Let's say you have the following debts:

  • Credit card 1: $2,000 at 15% interest

  • Credit card 2: $3,500 at 18% interest

  • Personal loan: $5,000 at 12% interest

Using the debt snowball method, you would start by paying as much as you can on the smallest debt (credit card 1) while making the minimum payments on the other two debts. Once credit card 1 is paid off, you would use the money you were previously using to pay off credit card 1 to pay off credit card 2. Then, once credit card 2 is paid off, you would use that money to pay off the personal loan.

Assuming you can pay $300 per month towards your debt, it would take you:

  • Credit card 1: 7 months to pay off

  • Credit card 2: 12 months to pay off (after credit card 1 is paid off)

  • Personal loan: 18 months to pay off (after credit card 2 is paid off)

Total time to pay off all debt: 37 months

Total interest paid: $1,947

Keep in mind that this is just an example and your own debt and interest rates may vary. Additionally, this method may not be the most efficient way to pay off debt considering the interest rate, it is important to consult with a financial advisor for personalized advice.


Debt Avalanche Method

The debt avalanche method is a debt reduction strategy that involves paying off debts in order of highest to lowest interest rate, regardless of balance. This method is all about saving money on interest. By paying off your highest-interest debt first, you will save money in the long run. The idea is that once you pay off a debt, you will use the money that you were putting towards that debt to pay off the next highest-interest debt on your list, and so on until all your debts are paid off.


Pros:

  • It is the most efficient way to pay off debt since you will save money on interest in the long run.

  • It may be the best option for people with a lot of debt since it saves money.

Cons:

  • It may take longer to pay off debt, which can be demotivating.

  • People may not see progress as quickly since they may not be paying off smaller debts first.

Debt Avalanche example:

Let's say you have the following debts:

  • Credit card 1: $2,000 at 15% interest

  • Credit card 2: $3,500 at 18% interest

  • Personal loan: $5,000 at 12% interest

Using the debt avalanche method, you would start by paying as much as you can on the debt with the highest interest rate (credit card 2) while making the minimum payments on the other two debts. Once credit card 2 is paid off, you would then focus on the debt with the next highest interest rate (credit card 1), and then finally on the personal loan.

Assuming you can pay $300 per month towards your debt, it would take you:

  • Credit card 2: 15 months to pay off

  • Credit card 1: 8 months to pay off (after credit card 2 is paid off)

  • Personal loan: 14 months to pay off (after credit card 1 is paid off)

Total time to pay off all debt: 37 months

Total interest paid: $1,743

Keep in mind that this is just an example and your own debt and interest rates may vary. Additionally, this method may not be the most efficient way to pay off debt considering the interest rate, it is important to consult with a financial advisor for personalized advice.





Debt Snowball vs. Avalanche

The biggest difference between the two methods is the order in which you pay off debts. The debt snowball method focuses on paying off the smallest debts first, while the debt avalanche method focuses on paying off the highest interest debts first.


Which Method is Better?

The answer to this question depends on your personal situation. If you need motivation to pay off debt and feel accomplished by paying off small debts, the debt snowball method may be the best option for you. However, if you want to save money on interest in the long run and have the patience to pay off high-interest debts first, the debt avalanche method may be the best option for you.


The 3 Biggest Strategies for Paying Down Debt

  1. Create a Budget: The first step in paying down debt is to create a budget. You need to know how much money you have coming in and going out each month. Once you know your income and expenses, you can create a plan to pay off your debts.

  2. Prioritize Your Debts: Decide which debts to pay off first. You can choose to pay off the debt with the smallest balance first, the debt with the highest interest rate first, or a combination of the two.

  3. Reduce Your Expenses: To pay off debt, you may need to cut back on your expenses. Look for ways to save money on things like groceries, entertainment, and transportation

Does Debt Avalanche Work?

The debt avalanche method has been shown to be an effective way to pay off debt. By focusing on the highest interest debts first, you can save money on interest in the long run. However, it is important to note that this method may not work for everyone. If you have a lot of debt and need motivation to pay it off, the debt snowball method may be a better option.


Is the Debt Snowball Effective?

The debt snowball method has also been shown to be an effective way to pay off debt. By paying off small debts first, you gain momentum and motivation to keep going. This method may not be the most efficient way to pay off debt, but it can be effective for people who need motivation to get started.


What is the Most Highly Recommended Method of Paying off Debt?

There is no one-size-fits-all answer to this question. The best method for paying off debt depends on your personal situation. If you need motivation to pay off debt, the debt snowball method may be the best option for you. If you want to save money on interest in the long run, the debt avalanche method may be the best option for you. Ultimately, the most important thing is to create a plan and stick to it.


How to Get Rid of 30k in Credit Card Debt

Getting rid of $30,000 in credit card debt may seem overwhelming, but it is possible. Here are some steps you can take to pay off your debt:

  1. Create a budget: The first step is to create a budget. You need to know how much money you have coming in and going out each month.

  2. Prioritize your debts: Decide which debts to pay off first. You can choose to pay off the debt with the smallest balance first, the debt with the highest interest rate first, or a combination of the two.

  3. Consider a balance transfer: If you have high-interest credit card debt, consider transferring the balance to a card with a lower interest rate. This can help you save money on interest and pay off your debt faster.

  4. Cut back on expenses: To pay off debt, you may need to cut back on your expenses. Look for ways to save money on things like groceries, entertainment, and transportation.

  5. Increase your income: Consider ways to increase your income, such as taking on a part-time job or freelance work.

  6. Seek help: If you are struggling to pay off your debt, consider seeking help from a financial advisor or credit counselor.


Ultimately, the choice between debt snowball and debt avalanche will depend on the individual's personal preferences and financial situation. Both methods can be effective, but it is important to weigh the pros and cons and choose the method that will work best for you.


Summary:


In summary, the debt snowball and debt avalanche are two methods for paying off multiple debts. The debt snowball method prioritizes paying off the smallest debt first, while the debt avalanche method prioritizes paying off the debt with the highest interest rate first. Both methods have their pros and cons, and the choice between them will depend on the individual's personal preferences and financial situation.

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