Debt Snowball vs Avalanche

Debt Snowball vs Avalanche

Two methods, one shared engine: pay the minimum on everything, then throw every spare dollar at a single target until it dies, and roll the freed payment onto the next one. The only disagreement is which debt gets attacked first. Snowball says smallest balance. Avalanche says highest interest rate.

Run both against a realistic pile of debt and the answer is unsatisfying in a useful way. The avalanche wins, by about $643 on $27,500 of debt. Then consider that minimum payments alone would cost over $6,000 more than either method, and the fight about ordering starts to look like the wrong argument.

The mechanics, in five steps

Both methods are the same loop with one line changed.

1. List every debt with its balance, its rate and its minimum payment.
2. Pay the contractual minimum on all of them, every month, without exception.
3. Send every remaining dollar to one target debt: the smallest balance (snowball) or the highest rate (avalanche).
4. When the target dies, add its payment to the attack on the next debt. Your monthly outlay never changes.
5. Stop when the list is empty. Then send the whole amount to savings or investments instead.

Step 4 is the part people underestimate. Rolling the freed payment forward is what turns a series of small repayments into a payoff plan. A debt cleared in month six does not free up money to spend; it frees up money to attack faster.

The arithmetic on $27,500 of debt

Four debts, the kind that accumulate without anyone deciding to take on debt: a card balance, a car loan, a personal installment loan, and money borrowed from family at no interest. The monthly budget is fixed at $1,100 — that is the total that leaves the account, and it stays $1,100 in both runs.

The avalanche order is card, car, installment loan, family loan. The snowball order is installment loan, card, family loan, car — it picks the smallest balance regardless of what that balance costs. Everything before month four is identical, because the card happens to be both the smallest balance and the most expensive rate. Divergence begins right after it clears.

The numbers: avalanche finishes in 27 months and pays $1,614 of interest. Snowball finishes in 28 months and pays $2,257. The snowball's extra $643 is not a rounding error — it is what the 19% card costs while you spend five months clearing a 6% loan for the satisfaction of crossing something off.

Now the comparison that matters:

The method argument is worth $643. Having a plan at all is worth $6,050.