Snowball vs. Avalanche:
Which Debt Reduction Method Is Fastest?

Life often hands us unexpected twists and turns, and for many, these surprises can lead to debt. You're not alone in this. Countless people struggle with debt every day, and while the weight of it can be oppressive, there are effective strategies to help you break free. Two of the most popular methods are the snowball and avalanche methods. But which is the fastest? Let's dive in and compare.

Snowball vs. Avalanche: What Is the Snowball Method?

The snowball method, championed by financial guru Dave Ramsey, focuses on building momentum and celebrating small victories. Imagine a snowball rolling down a hill, gathering more and more snow as it goes, increasing in size until it's unstoppable. That's the idea behind this method.

How it works:

• List all your debts from the smallest to the highest amount, regardless of the interest rate.
• Pay the minimum payment on all debts except for the smallest one.
• Put as much money as possible towards that smallest debt until you have paid it off.
• Once that debt is gone, move to the next smallest, and so forth, until all your debts are gone.

The psychological boost of seeing debts disappear quickly can be incredibly motivating. For many, it provides the emotional encouragement they need to persevere.

Advantages of the Snowball Method

There are quite a few advantages to this method. First, seeing a debt - any debt - get paid off is psychologically rewarding. Even if it's just those $300 in extra car repairs you had to put on a new credit card, paying that off is a huge win.

Secondly, it frees cash flow sooner. Suppose you have three credit cards, each with minimum payments of $100, $200, and $300. When you get the $100 card paid off, you can put that $100 towards the $200 one. However, you are not legally obligated to do so. So, if you need that extra $100 one month, you can take it and put it towards something else. Yes, it will delay your debt repayment journey a bit, but that's better than hitting a cash crunch, needing a loan, or not making your minimum payments, so your credit score takes an even further hit. Psychologically, it's nice to feel like you don't owe quite so much money!

Lastly, the snowball method is intuitive. Rather than managing and monitoring the interest rates of cards, you can focus on the cards with the lowest balance. That's always easy to figure out.

Disadvantages of the Snowball Method

The primary disadvantage of the snowball method when considering snowball vs. avalanche is that the snowball method can result in paying more interest over the long term because you're not paying off the highest-interest debts first. Additionally, since you're paying more interest, you're likely paying off your debts for longer.

Who Should Use the Snowball Method?

If you want to free up cash flow as quickly as possible, or you feel that you will benefit psychologically from the encouragement that paying debts off brings, the snowball method is for you. For many people, the snowball method is the best way to pay off debt because it celebrates those small victories and gives hope for a future.

What is the Avalanche Method?

The avalanche method is less about the emotional journey and more about the math. Think of it as the slow but mighty force that, over time, shapes mountains. You pay off your higher-interest debts first and then pay off your lower-interest ones. The idea is to minimize the amount you spend on interest.

How it works:

• List all your debts, irrespective of the balance, from the highest interest rate to the lowest.
• Make minimum payments on all debts but direct any extra funds to the debt with the highest interest rate.
• Once you pay off the highest-interest debt, put all excess funds to the next highest-interest debt.

In theory, this method will save you the most money in the long run because you're tackling those high-interest debts first. It's the mathematical approach to clearing your debt as efficiently as possible.

Advantages of the Avalanche Method

The primary advantage of the avalanche method is that you pay less interest overall. Mathematically, the avalanche method saves you the most money, but it may take longer before you have any big win paying one of your debts.

Another advantage of the avalanche method is that it encourages you to look at your credit card interest rates to understand which are the most costly. If you have one card at 15% and one card at 30%, for example, as you start to clear your debts and lower your balances, you'll know to avoid too many charges on the 30% card. People sometimes put too much on a card with an ultra-high rate without realizing how expensive that debt will be.

Disadvantages of the Avalanche Method

The primary disadvantage of the avalanche method is that it takes longer to achieve a psychological win. You may be paying a high-interest balance for a prolonged period, which can feel defeating. For example, putting $400 towards a card with a $10,000 balance at a 25% interest rate will take three years before that card gets to zero.

Additionally, as noted in the advantages of the snowball method, your minimum payment obligations may not shrink as quickly with the avalanche method. The number of minimum payments will not shrink as rapidly, meaning you'll have to remember to make them all for longer.

Who Should Use the Avalanche Method?

If you want to pay less interest (and who doesn't?), the avalanche method is for you. As you pay less interest overall, the avalanche method will almost always be faster than the snowball method. Therefore, if you want to get out of debt as quickly as possible and you can stick to the plan even if you don't get those psychological wins, the avalanche method is the way to go.

Snowball vs. Avalanche: A Comparison with Examples

The best way to compare the snowball vs. avalanche method is to create some artificial scenarios to see how each one plays out.

For our first scenario, imagine Sarah has three debts.

• Credit Card A: $1,000 at 15% interest.
• Credit Card B: $3,000 at 25% interest.
• Personal Loan: $2,000 at 10% interest.

If Sarah Uses the Snowball Method...

Sarah has $500 monthly for her $6,000 in total debt. For simplicity, let's assume each card uses the 3% rule - that is, the minimum payment is 3% of the balance. Let's assume the personal loan is over one year, with a monthly cost of $175.

Using the snowball method, Sarah would tackle Credit Card A first. Credit Card B would have a minimum payment of $90 per month. So, she'd have $235 left to pay toward Credit Card A ($500 - $90 - $175).

Credit Card A would go away in 5 months. After that, she'd move on to her loan, with a balance of about $1,000 left. With Credit Card A gone, she would have $410 towards that loan. In about three months, that loan would go away.

All that is left is Credit Card B. After eight months of minimum payments, its balance is about $2,800. With $500 a month going towards it, the balance goes away in about seven months.

The total time to clear all debts is a mere 16 months. Sarah can celebrate her first big win in just five months - getting Credit Card A paid off! And then three months later, she gets her second big win - the Personal Loan is no longer. In under a year, Sarah eliminates two debts and focuses on the prize - her last and final debt, Credit Card B.

If Sarah Used the Avalanche Method...

Under the avalanche method, Sarah would first pay off her highest-interest debt - Credit Card B.

The minimum payment on Credit Card A is $30, and the payment towards the loan remains the same at $175. The balance ($295) goes towards Credit Card B. In about 11 months, Credit Card B would go away.

The next highest-interest debt is Credit Card A. Its balance would be approximately $750. Sarah would do one month with $325 towards Credit Card A and $175 towards her loan. The loan would then be zero, and the month afterward, all $500 would go to Credit Card A, wiping it out completely.

In this example, the avalanche method paid all debts off in 11 months, five months shorter than the snowball method. This disparity is because there isn't a high-interest debt accumulating while you pay off a smaller, lower-interest one.

However, you'll wait 11 months for your first "win" instead of six. And Sarah's minimum payment requirements remain higher for longer. Her loan goes bye-bye in eight months under the snowball method, but it remains on the books for the entire year under the avalanche one because it takes almost a year to pay off the highest interest card.

Which Method Is Right for You?

Deciding snowball vs. avalanche is a deeply personal choice.

The Snowball method can be a game-changer for those who gain motivation from quick wins and need that boost to keep going. Nothing is more psychologically satisfying than seeing a debt go to a zero-dollar balance. Additionally, if you have a mixture of loans and revolving debts, the snowball method may reduce your legal obligations faster than the avalanche method.

On the other hand, if you're looking at the bottom line and are determined to save the most money overall, the avalanche approach is mathematically superior. It will pay your debts off the fastest, because it requires less interest. It just may take longer to see a "win."

The Final Word on Snowball vs. Avalanche

Debt is more than just numbers on paper; it's sleepless nights, stressful days, and the constant weight on one's shoulders.

Remember, you're not in this alone.

Whether you choose the snowball or the avalanche method, starting is the most important thing. Progress, no matter how slow, is still progress. Celebrate every milestone, seek support when needed, and keep your eyes on the prize: a debt-free future.

Whichever path you take, remember that you are more than your debt. You have the strength and resilience to overcome this challenge and forge a brighter financial future.

It's never too late to become debt-free. Pick the path you feel most comfortable with and stick to it.