Debt avalanche vs snowball: which pays off debt faster?

The two methods

Both methods start the same way: pay the minimum on every debt, then put every extra dollar toward one target debt. When the target is paid off, its whole payment rolls onto the next target, so the amount you pay each month stays the same while the payments aimed at the remaining debts grow. They differ only in which debt gets the extra money first.

• Avalanche: target the highest interest rate first, then the next highest. Money goes where it costs the most to leave it, so total interest is lowest for a given monthly budget in nearly every case.
• Snowball: target the smallest balance first, then the next smallest, regardless of rate. You close accounts sooner, which some people find easier to stick with.

If your smallest debt also has the highest rate, the two orders are the same. The choice only matters when they disagree.

A worked example

Take four debts totaling $36,500, with $685 a month of minimum payments, and add $300 a month on top for a fixed budget of $985:

The avalanche sends the extra $300 to the 24.99% credit card first. The snowball sends it to the $1,800 store card, the smallest balance, even though its rate is lower. Here is how each plays out:

Minimum payments are held at their starting amounts, as in our debt payoff calculator; interest accrues monthly at APR / 12. Card issuers use a daily rate, which changes the totals by cents to a few dollars. Car loan and student loan payments are fixed installments.

The avalanche saves $110 and finishes one month sooner. The snowball closes its first account in month 6, half a year before the avalanche clears anything, and both plans pay off the car loan in month 27. After the two cards are gone the plans are identical, which is why the gap is small: only $6,000 of the $36,500 is ordered differently.

Paying only the minimums is the real cost. Without the extra $300, nothing rolls over, the credit card takes 77 months to clear, and total interest is $12,155, $7,321 more than the avalanche.

What a bigger budget does

Raising the monthly payment shortens every plan. It also shrinks the avalanche's advantage, because high-rate balances are cleared faster under either order and spend less time charging interest.

An extra $100 a month saves $585 of interest with the avalanche, and $300 more saves $1,384, several times the $110 that separates the two methods. How much you pay matters more than the order you pay in.

When the avalanche clearly wins

The gap is widest when a large balance carries a much higher rate than the small debts, and when the budget leaves that balance outstanding for years. Consider a second set: a $7,500 rewards card at 26.99%, a $2,400 store card at 21.99%, a $9,800 car loan at 7.9% and a $3,800 student loan at 5.5%, again with $300 a month extra.

Here the snowball spends months 8 to 15 putting its extra money on a 5.5% student loan while the 26.99% card gets only its minimum, and it costs $814 more. The snowball still clears two accounts by month 15, before the avalanche clears its first in month 18. That trade, a few early wins for several hundred dollars, is the real decision.

When the snowball can make sense

The math favors the avalanche, but a plan only works if you keep paying it for years. Two studies in the Journal of Marketing Research looked at how people actually behave:

• In experiments with a debt repayment game, Amar, Ariely and colleagues (2011) found that people consistently paid off small debts first even when larger debts carried higher rates, a habit they called debt account aversion. Pointing attention to the interest building up on each debt helped participants get out of debt faster. The authors treat the small-first instinct as a costly bias, so this study is a caution about the snowball rather than support for it.
• Gal and McShane (2012), at Northwestern's Kellogg School, analyzed records from a debt settlement company and found that closing individual accounts predicted whether people eventually eliminated all their debt, regardless of the dollar size of the accounts closed. They suggest small wins can help sustain motivation.

The second study shows an association, not proof that the snowball causes success. Still, if the difference in your own numbers is small, as in the first example, a method you will stick with may be worth the extra cost. If the difference is large, the avalanche is usually worth the patience. A hybrid also works: clear one tiny balance for momentum, then switch to highest rate first.

Balance transfers and consolidation

Lowering the rates can save more than either ordering. A 0% balance transfer card moves card debt to a promotional rate, usually for a fee of 3% to 5% of the amount moved; a consolidation loan replaces several debts with one fixed payment. The CFPB notes that promotional rates end, that a lower payment can come from a longer term that costs more overall, and that more than 60 days late on a payment can let a card issuer raise the rate on the whole balance. Our credit card interest guide works through a balance transfer, and the Consolidate tab of the debt payoff calculator compares both against your current plan. For a single card, the credit card payoff calculator shows the payment that clears it by a target date.