Struggling with multiple debts and not sure which one to pay off first? You have two main strategies to choose from: the debt avalanche method, or the debt snowball method.
This guide breaks down both approaches with real examples, helping you choose the method that matches your personality and financial goals. Whether you prefer mathematical efficiency or psychological momentum, you’ll learn exactly how to implement your chosen strategy and avoid common pitfalls on your path to becoming debt-free.
What To Know About The Snowball Vs. The Avalanche Method
Before diving into the details, let’s understand the core difference between these two debt payment strategies. The debt avalanche method tackles your highest-interest debts first – like paying off a credit card charging 24.99% APR before touching a personal loan at 12% APR. It’s a mathematical approach that saves you the most money over time.
The debt snowball method takes a different route, focusing on paying off your smallest debts first, regardless of interest rates. Paying off a $500 credit card balance before tackling larger debts might not save you the most money, but it creates powerful psychological wins that keep you motivated.
Both methods share one crucial rule: you must keep making minimum payments on all your debts. The key difference lies in how you use any extra money available for debt repayment. This choice affects not just your total interest paid, but also how quickly you’ll see progress and how likely you are to stick with your plan.
Debt Avalanche Method
Let’s take a closer look at the debt avalanche method.
How to pay off debt using the debt avalanche method
Start by creating a simple list of all your debts, ranking them by interest rate from highest to lowest. For example, list that credit card charging 24.99% APR at the top, followed by your personal loan at 12% APR, and your student loan at 5% APR.
Every month, make the minimum required payments on all your debts – this is non-negotiable. Then, take any extra money you can spare and put it all toward the debt with the highest interest rate.
Once you’ve knocked out your highest-interest debt, take both the minimum payment and extra money you were putting toward it and redirect the total amount to the next debt on your list. Think of it like a cascade – as each debt is paid off, your payment power grows stronger for tackling the next one.
Debt avalanche example
Let’s look at a real-world scenario with three common debts. Say you’re juggling a $30,000 student loan at 5.95% APR with a $550 monthly payment, a $10,000 auto loan at 3.99% APR requiring $400 monthly, and a credit card balance of $8,000 at 14% APR with a $200 minimum payment.
You’ve managed to free up an extra $350 each month for debt repayment. Using the avalanche method, you’d direct that entire $350 toward your credit card debt first, since it carries the highest interest rate at 14%. Meanwhile, you keep making the minimum payments on your student and auto loans.
After the credit card is paid off, you’d take the $350 plus the $200 you were paying on the card – now $550 in total – and attack your student loan next, since its 5.95% rate is higher than your auto loan’s 3.99%. This concentrated firepower helps eliminate your debts in the most cost-effective way possible.
Debt avalanche pros and cons
The debt avalanche method shines in several key areas. By targeting your highest-interest debts first, you’ll save the most money in interest charges over time. This approach leads to a faster overall path to becoming debt-free when followed consistently. It’s particularly appealing to those who prefer logical, mathematically-optimal approaches to financial planning, and it prevents high-interest debts from ballooning while you’re paying off other obligations.
However, this method does come with some challenges. It requires strong discipline to stay the course, especially when progress seems slow. If your highest-interest debts also happen to have large balances, it might take longer to experience the satisfaction of paying off an entire debt. Some people find this lack of quick wins discouraging. The method also tends to be more complex to track and manage compared to simpler approaches like the debt snowball.
Debt Snowball Method
Now, let’s turn to the debt snowball method.
How to pay off debt using the debt snowball method
Start by listing all your debts from smallest to largest balance. For instance, put your $2,000 store credit card first, followed by your $5,000 personal loan, and then your $15,000 car loan – regardless of their interest rates. Make the minimum payments on all your debts each month without fail. Then, take any extra money you have and put it all toward your smallest debt.
Once you’ve paid off that smallest debt, roll that entire payment amount (both the minimum payment and extra money) into paying off your next smallest debt. Like a snowball rolling downhill, your payment power grows larger with each debt you clear. This method’s real strength lies in the psychological wins of completely paying off debts quickly, which can help maintain motivation throughout your debt-free journey.
Debt snowball example
Let’s break down this scenario with three typical debts:
- Credit Card #1: $5,000 ($60 monthly minimum)
- Personal loan: $10,000 ($250 monthly minimum)
- Credit Card #2: $12,000 ($170 monthly minimum)
You have an extra $320 monthly for debt payments. Following the snowball method, you would:
Start here:
- Put the entire $320 extra toward Credit Card #1 (smallest balance)
- Keep making minimum payments on everything else
- Total monthly payments = $800 ($320 + $60 + $250 + $170)
After Credit Card #1 is paid off:
- Roll that $380 ($320 + $60) to the personal loan
- Your personal loan payment becomes $630 ($380 + $250)
- Keep paying the minimum on Credit Card #2
The snowball method’s power comes from the motivation you get from completely eliminating each debt, one at a time, starting with the smallest. Those quick wins help keep you going!
Debt snowball pros and cons
Key Advantages:
The snowball method’s real strength lies in its psychological wins. When you pay off a small debt quickly, you get an immediate boost of motivation – like crossing an item off your to-do list. Its straightforward approach makes it easy to understand and follow: just focus on the smallest debt first, regardless of interest rates. Each time you eliminate a debt, your confidence grows, creating momentum that can carry you through to bigger challenges.
Notable Disadvantages:
The main trade-off is financial: since you’re not prioritizing high-interest debts, you might pay more in interest over time. While you’re focusing on smaller debts, larger ones with high interest rates continue to grow. It’s not the most mathematically efficient approach, and some people find their motivation wanes when they finally face their largest debts after the smaller ones are gone.
For a detailed walkthrough on calculating your own debt snowball, including an inspiring real-life success story, check out our guide on How to Calculate Your Snowball Debt.
Which Method Should You Use?
The best debt payoff strategy for you comes down to your personal motivation style. Think of it this way:
Choose the avalanche method if:
- You’re motivated by seeing the maximum financial benefit
- You’re comfortable tracking complex numbers
- You can stay focused on long-term goals without needing quick wins
Choose the snowball method if:
- You need regular victories to stay motivated
- You prefer a simpler, straightforward approach
- You’re likely to give up without visible progress
Just like with dieting, the “best” plan is the one you’ll actually stick to. A mathematically perfect approach won’t help if you abandon it after a few months. Both methods work – the key is choosing the one that matches your personality and consistently following through.
Mistakes to Avoid When Paying Off Debt
The first major pitfall to avoid is continuing to use credit cards while paying off debt. This creates a frustrating “two steps forward, one step back” situation that can quickly derail your progress and crush your motivation. Make the switch to cash or debit cards for your daily expenses until you’ve established better spending habits. Some people find it helpful to remove saved credit card information from online shopping sites to reduce temptation.
Another crucial mistake is failing to build an emergency fund alongside your debt repayment efforts. While it might seem counterintuitive to save money when you’re in debt, having even a modest $1,000 emergency fund can prevent you from taking on new debt when unexpected expenses arise. This financial buffer should be your first priority before aggressively tackling debt.
Making minimum payments without a broader strategy is a third common mistake. This approach keeps you trapped in debt longer and costs significantly more in interest over time. Whether you choose the avalanche or snowball method, you need a concrete plan for strategically applying extra payments to your debts.
Finally, don’t underestimate the importance of tracking your progress and celebrating milestones. Debt repayment is a marathon, not a sprint. Keep a spreadsheet or use an app to monitor your progress, and take time to celebrate key achievements like paying off your first debt or reaching 25% of your goal. These celebrations help maintain motivation throughout your debt-free journey.
Why It’s Important To Have A Debt Repayment Plan
Take the real-life example of Kenna and Ryan, who found themselves with barely $50 in savings despite their income. Without a clear debt repayment plan, they kept accumulating credit card debt through impulsive spending and their inability to say no to their children’s wants.
[00:00:20] Ramit: But you only have $50 in savings now.
[00:00:23] Ryan: Yes. I’m a frivolous spender. I will just buy stuff. Break my back to buy my kids whatever they need.
[00:00:30] Ramit: Because what does it mean to you?
[00:00:33] Ryan: Everything. It means that I’m providing for them. It means that I’m not going to hit rock bottom. I’m not going to fail. I’m going to do whatever I have to. How could you not grind so hard to get what you can for your kids? It’s just so annoying that we even allowed ourselves to get into this position.
The first lesson reveals how conflicting money mindsets within a relationship can sabotage financial progress. Ryan’s view of money as a source of enjoyment clashed with Kenna’s scarcity mindset, creating a financial tug-of-war. Without finding common ground and developing a unified plan, couples can remain stuck in patterns that perpetuate debt despite their best intentions.
Secondly, their experience shows how easy it is to fall into the minimum payment trap without a structured approach. Like many couples, they found themselves making token payments while simultaneously racking up new charges, creating a never-ending cycle of debt. This pattern prevents any real progress toward financial freedom.
The third crucial lesson highlights how debt’s impact extends far beyond mere finances. The psychological weight of their debt affected their family dynamics, limited their children’s opportunities, and created constant stress about the future. Debt wasn’t just a number on their statements – it was a cloud hanging over their entire family’s well-being.
The turning point came when they realized what debt freedom could mean: $700 monthly for retirement savings and $300 for enjoying meals out without guilt. Their story proves that a solid debt repayment plan doesn’t just eliminate debt – it opens doors to building lasting wealth and enjoying life’s pleasures without financial burden. This transformation shows how tackling debt head-on can change not just your current situation, but your family’s financial future.
Set Yourself Up For Financial Success
Becoming debt-free is like climbing a mountain – it’s challenging and demanding, but the view from the top changes everything. While it may be the most difficult part of your financial journey, it’s also the most transformative. Once you break free from the chains of debt, you can direct your resources toward building your Rich Life, whether that means exploring distant countries, growing your investment portfolio, or simply sleeping better at night knowing you’re financially secure.
The path to financial freedom isn’t about depriving yourself of every small pleasure or scrutinizing every coffee purchase. Instead, it’s about creating sustainable systems that align with your values and lifestyle while steadily moving you toward your financial goals. You can tackle debt while still maintaining the quality of life that matters to you.
My New York Times bestselling book, I Will Teach You To Be Rich, goes beyond simplistic advice like “skip the lattes.” It provides a detailed blueprint for mastering your money: from creating automated payment systems that work while you sleep, to implementing proven debt-elimination strategies, to building lasting wealth. The book offers practical, actionable steps that help you eliminate debt while still enjoying the things that make life worth living.
