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There are two well-known ways to pay off several debts. The avalanche sends every spare dollar to the debt with the highest interest rate. The snowball sends it to the smallest balance first, for the motivation of closing accounts quickly. People argue about this with surprising heat. So we took one fictional household and ran the numbers both ways.
The household
Priya and Dan have three debts and have agreed on a fixed $800 a month to clear them. Any amount above the minimums goes to one target debt at a time. When a debt is cleared, its minimum rolls into the next target.
| Debt | Balance | Annual rate | Minimum |
|---|---|---|---|
| Store card | $1,200 | 18% | $40 |
| Credit card | $6,000 | 24% | $180 |
| Car loan | $8,000 | 6% | $250 |
| Total | $15,200 | $470 |
That leaves $330 a month of extra payment to point at a target.
- Snowball order: store card, credit card, car loan.
- Avalanche order: credit card, store card, car loan.
What happened, month by month
Interest was charged monthly at one-twelfth of the annual rate. No new spending went on any card.
| Snowball | Avalanche | |
|---|---|---|
| First debt cleared | Month 4 | Month 14 |
| Second debt cleared | Month 16 | Month 16 |
| Debt-free | Month 22 | Month 22 |
| Total interest paid | $1,791 | $1,715 |
The avalanche saved $76 over nearly two years. Both plans finished in the same month. The snowball, meanwhile, closed an account in month four, while the avalanche made the couple wait over a year for their first visible win.
So which should you choose?
The maths always favours the avalanche, or ties with it. The question is whether you will stick with the plan. A method that saves $76 but gets abandoned in month nine because nothing seems to be happening is worse than one that costs $76 and gets finished.
A reasonable rule of thumb:
- If the rates are far apart, say 8% versus 25%, use the avalanche. The savings are real.
- If the rates are close, or a tiny balance is sitting there nagging you, clear it first and then switch to the avalanche.
- If you have tried and failed to stick with a payoff plan before, the snowball’s early wins may be worth the small extra cost.
Setting up your own comparison
You need nothing more than a spreadsheet.
- List every debt with balance, annual rate and minimum payment.
- Decide a fixed monthly total you can sustain, including the minimums.
- Make two copies of the sheet, one sorted by rate, one by balance.
- For each month, add interest, subtract minimums, then send the remainder to the top debt in the list.
- When a balance hits zero, roll its minimum into the extra payment.
- Compare total interest and the month each debt is cleared.
Thirty minutes of setup gives you an answer for your debts rather than a general opinion. Priya and Dan chose the snowball, by the way. Dan wanted to cut up the store card by October.