Debt Snowball Vs. Debt Avalanche: Which is Better for You?

There are two great methods for eliminating debt: the debt snowball vs. debt avalanche! But which is better for you?

I like both methods as a way to reduce and/or eliminate debt.

• Related: 5 Ways Minimalism Saves You Money

I am currently debt free. In fact, I have never even owned a credit card.

The average American household had an average of $5,221 in credit card debt in 2022 (nearly $850 billion in total US credit card debt).

Then there are mortgages, student loans, auto loans, consumer financing etc., all of these sources of debt are like heavy chains tied around your body. They weight you down.

There are ways of breaking free.

Snowball or Avalanche?

Which is better for you? First, what are these two methods of paying off debt?

The debt avalanche method involves paying off the debt with the highest interest rate first before moving on to lesser debts.

The debt snowball method involves paying off the smallest debts first before moving on to bigger debts.

(All the while you make the minimum payments on all your debts, using your extra funds from savings to make extra payments on the targeted debt)

Let’s use this simplistic example, say you have:

• $10,000 in credit card debt at 18% interest rate.
• $15,000 student loan at 6% interest rate.
• $8,000 car loan at 3.5% interest rate.

Using the debt avalanche method, you would pay off the credit card first. Then the student loan.

Using the debt snowball method, you would pay off the car loan first. Then the credit card.

The debt avalanche method will be saving you more money on interest payments in the long-term, while the debt snowball method is easier to implement and builds up your motivation faster.

However, whichever method you decide should be based on your level of financial discipline, mindset, and focus.

• Related: 3 Benefits of Being Car Free!

If you are the type that needs to build a momentum, then the debt snowball is better for you as it lets you win those small victories first to build your momentum and drive.

If you are the type that can focus on tackling the big interest debt first with ironclad commitment, then the debt avalanche is better for you.

Either way, your debts will start to decrease greatly. As a result, your wealth grows and your net worth increases.

Conclusion

The debt snowball vs. debt avalanche, which is better for you?

I would say it comes down to your mindset, disciple, and focus. Much of personal finance is a based on one’s mindset and mentality.

There are also plenty of other circumstances that could affect with method you use like a sudden emergency expense or maybe you learn your company is considering a layoff.

That is where the “personal” in personal finance comes into view. Everyone’s circumstances are different.

Nevertheless, reducing and/or eliminating your debt is one of the most important things you can do for yourself financially.

So, how about the rest of you? Which method do you prefer? The snowball or the avalanche? Let me know in the comments below!

Also, don’t forget to Subscribe for more great content and updates on my financial journey! 🙂