The debt snowball and debt avalanche are two methods people use to pay off debts. These two debt strategies focus on different aspects of debt. For example, debt snowball is applied based on the size of each debt in dollar amount. On the other hand, debt avalanche puts more focus on interest rates. This article will compare debt snowball vs debt avalanche to help you pick the right strategy.
What is debt snowball method?
The debt snowball method or snowballing method is a debt strategy where a borrower pays more money on the smallest debt while meeting the minimum requirements on other debts.
The main purpose of the debt snowball is to pay off your debt starting from the smallest debt first.
Once the smallest debt is paid off, you then move to the next smallest debt. You continue this process until all your debts are fully paid off. This strategy yields quick results. This makes it a good strategy for people who like quick results and get motivated by small wins.
The downside of this strategy is that it takes longer to get out of debt. This is because meeting only the minimum requirements on larger debts makes you pay higher interest charges. The interest you paid on large debts could be more than the smallest debt by the time it is paid off. As a result, your debt could grow instead of going down.
More reading: How to use the debt snowball method to pay off debt?
What is debt avalanche method?
The debt avalanche method is a debt payment strategy where a borrower pays off debts starting with the debt that has the highest interest rate. With this strategy, you allocate more money on debt with the highest interest rate while meeting the minimum requirements on other debts.
The debt avalanche is an aggressive method to pay off debt. This method is effective for those who are serious about paying off their debts and have no intentions of giving up. A high level of discipline is important to effectively apply this strategy.
The benefit of this strategy is that it helps you pay off your debt much faster than debt snowball.
By getting rid of the debts that is costing you more money in interest, you stop your debts from growing and most of the money you pay covers the principal rather than interest. This strategy makes it easy to aggressively pay off your debt. It becomes easier to pay off the remaining debts over time as you eliminate high-interest debts.
The downside of this strategy is that it takes longer to yield results. For example, if you owe a lot of money on a high-interest debt, it will take longer to pay it off. For this reason, you will not have the motivation from small wins.
More details: How to use the debt avalanche method to pay off debt?
Debt snowball vs Debt avalanche
| Debt Snowball | Debt Avalanche |
| Focuses on the smallest debt in dollar amount | Focus on debt with the highest interest rate |
| Yields results faster | Fast results are not guaranteed |
| You get motivation from small wins | Does not provide motivation |
| Not too hard to keep up with | Hard to follow and require a high level of discipline |
| Takes longer to pay off your debt | You pay off your debts faster |
| Good for those who like to celebrate small wins | Good for those who are serious about paying off their debts |
| It is all about psychology | Does not work psychologically |
| Helps you pay off debt | Helps you pay off debt |
Related: 9 tips to be optimistic and achieve big goals
Debt snowball vs debt avalanche: Which one is better?
The debt snowball and debt avalanche are two practical methods. The debt avalanche is very aggressive whereas the debt snowball is more psychological.
The method you choose to work with will depend on what you are valuing the most. If for example, you:
- Like small wins
- Feel like you might give up easily
- Not sure if you are ready face your debts head on
- Get motivated by fast results
- Have a small income
Then the debt snowball could be your best shot. Debt snowball is more about psychology. It works slowly but it eventually get you to your destination.
On the other hand, if you are:
- Serious about paying off debt
- Willing to pay the prices and work hard
- Have no interests in small wins
- Are dedicated and have the discipline
Then, the debt avalanche is a good fit for you.
Whether you are comparding debt avalanche vs debt snowball, the method you choose to use does not matter at all. What matters is your ability to stick to the method.
It is possible that one person can suitch from one method to another. For example, you can start with debt snowball and later move to debt avalanche after increasing your income.
