Tackling Debt: To Snowball or to Avalanche that is the Question?



        Tackling debt can be daunting. But when you have multiple debts you need to pay off, the task can seem intimidating and become overwhelming for many. I remember, being in my mid-twenties saddled with an undergraduate student loan, a personal loan, a car loan, credit card debt, and a graduate student loan looming around the corner. I knew I had to figure out a way to address this debt and fast. So, I did what I always do when I want to learn something - I Googled it 😆. I started reading articles about different methods to use to pay off debt. This is how I initially learned about the Snowball and Avalanche methods. In my opinion, both methods are ultimately beneficial because they use strategy (whether based on emotion or logic) to help you pay off your debt.

        Below, I breakdown each method and compare the two.



The Snowball Method

        What is it? The Snowball method refers to paying off your debt in priority of the debt balance, focusing on your debt with paying off the lowest balance first. The idea behind this method is to put additional money towards your debt with the lowest balance, while paying the minimum balance on your other debts. Once that debt is paid off, you take the money that you were putting towards it and add it (or roll it over) to the next debt with the lowest balance. Here's an example:

  

How it works: Let’s say you currently have 3 major debts (see above). Under the snowball method you would tackle paying off your car loan first, even though your credit card debt has a much higher interest rate. Why? Because you’re able to pay off $1,000 a lot faster than paying off $3,500. This quicker win not only knocks one of your debts off the books, it also motivates most people to keep going. The emotional aspect tied to this method, based on small victories, tends to make it more popular for most beginners.


            In our scenario above, the minimum payment for your car loan is $50. Under the snowball you would pay the $50 and whatever additional amount you were able to put towards this debt. Let’s say you were able to carve out an additional $50 a month to put towards this debt. So you are now paying $100 a month towards this debt. After the debt is paid off, you will now take the $100 and put it towards your next lowest debt balance, which in this case would be your credit card debt. But you’re not just going to pay $100 to your credit card debt, you’re going to pay $100 plus the minimum payment, $75 (that you were already paying towards that debt) - meaning you are now paying $175 a month on that debt, thus creating your snowball.




The Avalanche Method

        What is it? The Avalanche method refers to paying off your debt in priority of interest rate, paying the debt with the highest interest rate first. The idea behind this method is to put additional money towards your debt with the highest interest rate, while paying the minimum balance on your other debts. This option may help you save time and interest over your debt payoff journey but it may take more time to get your first victory, which is why patience is required when using this method.


        How it works: Using the same chart as before (see above), under the avalanche method you would tackle paying off your credit card debt first. Why? Because it has the highest interest rate and paying this debt off first will save you money in interest over the course of your debt-free journey. How?    
  • If you pay the minimum payment of $75 on a $3,500 balance with an interest rate of 18%, it will  take you until April 2027 to pay off that debt and you will pay $2,565 in interest! Meaning your total debt paid would be $6,156.
  • However, if you put just an additional $50 to your minimum payment - now paying $125 on a $3,500 balance with an interest rate of 18%, you will pay off that debt by July 2023 and only pay $1,072 in interest. Meaning your total debt paid would be $4,572. Saving you both time and money!
        Once that debt is paid off, similar to the snowball method, you will take the money you were putting towards your credit card debt and add it to the next debt with the highest interest rate.

Snowball vs. Avalanche



You Don’t Always have to Choose

        There will be times that you don’t have to choose. Sometimes your debt with the lowest balance is the debt with the highest interest-rate. This happened to me when I was paying off my undergraduate student loan, so ultimately I didn’t have to choose even though I was planning on using the snowball method (I like easy wins). I call these win-win situations because not only are you getting a quicker victory, you’re also saving money in interest!

        In the end, it comes down to which method you know you will actually stick to. If you aren’t going to stick to it then it doesn’t really matter which method you choose because it won’t work. Paying off debt is all about consistency, so determine which method is going to keep you motivated on your journey and use that one.


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Comments

  1. Great tips on how to tackle debt! It’s so frustrating trying to figure out which ones to tackle first but this post made it a whole lot easier!

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    1. Thanks for the comment Jojo! Yes, the process can be frustrating but finding the method that you know you'll stick with is extremely helpful!

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  2. This is an excellent post! Even as someone who considers myself financially literate, I had never heard of these two methods. Right now we're trying to pay over the minimum for all of our debts (except for the mortgage, which is expensive enough as-is), which is something we're fortunate to do, even if it's just $50 more. I'd like to get to the point where we could comfortably double a payment, but we're not quite there yet. Thank you for sharing!

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    1. Thanks for the comment! Paying over the minimum is key, even if you don't think it's a lot. As I always say, something is always better than nothing. That would be awesome if you're able to double payments. Good luck!

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  3. I'm currently doing the debt snowball method and it is the best thing ive ever done for myself. Seeing my debts get cleared off one by one actually motivates me to make even more payments. I should be debt free by January 2021🤩

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    1. That's awesome Roni! That's how I felt when I first started using the snowball method. I was finally seeing my debts disappear one by one and that's a pretty good feeling! January 2021 is only five months away you're so close to the end, here's an early Congrats to you! :-)

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  4. Wonderful tips and so easy to understand. Talking about debt is definitely daunting, but I think once a person has a secure well developed plan and goal, and they are consistent, then paying off debt won't seem so depressing.

    Thanks for these tips!

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    1. I totally agree. Thanks for the comment!

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  5. This was one of those I learned something new post. Great post. I like how u broke it all down in the pro and con chart. I think for me I would rather do the snowball so that I can have those little wins that keep me going.

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    1. Thanks for the comment Ez! And glad to hear that you learned something new. Yea, I'm team Debt Snowball too, those quicker wins helps keep me motivated!

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  6. very well written this is what people need to read
    to keep positive 2020 is a strange year.

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  7. Great post. This is much needed for a lot of people!

    www.raisingharry.com

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    Replies
    1. Thanks for the comment! Hopefully people are able to use this to help them on their debt repayment journey! :-)

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