Debt snowball versus debt avalanche, with a worked example

The debt snowball and the debt avalanche are the same method with one difference. Both pay the minimum on every debt and send every extra dollar to a single debt until it is gone, then roll that debt's payment onto the next; the snowball orders the debts smallest balance first, the avalanche highest interest rate first. The avalanche always costs less in interest. The snowball always clears its first debt sooner. On the worked example below, three debts and $400 a month extra, the avalanche saves $161 over a 27-month payoff, and the snowball has its first debt gone in month 4 instead of month 11. Which of those matters more is the whole choice.

What both methods share

The mechanism that does the work is the rolling payment, not the order. Every debt gets its minimum, so nothing goes late, and one debt gets everything extra. When that debt is paid off, its minimum and the extra both move to the next debt, so the payment on each successive debt is larger than the last. The total paid each month never changes; it is the same $745 in month one and month twenty, and that fixed total is what makes the payoff date knowable.

Paying extra across all the debts at once, a little to each, has neither method's advantage: no debt clears early, and the high-rate balance keeps charging. The order matters less than the rule that the extra goes to one place.

Snowball: smallest balance first

The snowball ranks the debts by balance and ignores the rate. The first debt to go is the smallest, which is usually the fastest, and the rolling payment grows early. The case for it is behavioral: a debt gone in month four is a result the household can see, and households that see results keep paying.

Avalanche: highest rate first

The avalanche ranks the debts by interest rate and ignores the balance. The first target is the most expensive dollar the household owes, so every extra payment stops the most interest per dollar, and the total interest over the payoff is the lowest any order can produce. The case for it is arithmetic, and the arithmetic is certain.

A worked example, three debts and $400 extra

With $400 a month extra, the household pays $745 a month under either method. The snowball order is Card A, Card B, the loan; the avalanche order is Card B, Card A, the loan.

The avalanche saves $161. The snowball has a debt gone seven months sooner. Both finish in month 27, because the total payment is the same and the interest difference is small relative to $745 a month. For comparison, paying only the minimums on these three debts would take 80 months and cost about $7,300 in interest, which is the number both methods are really against.

Which one to choose

The difference between the methods is the size of the gap between the rates and between the balances. When the highest-rate debt is also the smallest, the two orders are the same. When the rates are close together, as they are for several cards, the avalanche's saving is small and the snowball's early win is free. When one debt has a much higher rate than the others and a large balance, the avalanche's saving grows, and it is worth the wait.

A workable rule: choose the avalanche unless the snowball's first payoff comes more than six months sooner, and in that case choose the snowball for the first debt and switch to the avalanche after it. The household gets the early result and pays most of the avalanche's interest saving anyway.

Keep the extra fixed and the minimums current

1. Find the extra from the budget, as a fixed monthly line, and do not let it vary with the month. See How to build an emergency fund inside a monthly budget for the small cushion that comes first, so the next surprise does not become a new debt.
2. Put every minimum on autopay, so a missed payment never adds a fee or a rate increase to the plan.
3. Send the extra to the target debt as a separate payment each month, so it is visible on the statement as principal.
4. Roll the payment when a debt clears. The freed minimum plus the extra goes to the next target the following month, not to the budget.
5. Stop adding to the balances. A card being paid down while it is still used is a treadmill, not a method.

Common mistakes

• Spreading the extra across every debt. No early win and no interest saving; the worst of both.
• Letting the freed minimum drift back into spending. The rolling payment is the method; without it, the payoff takes years longer.
• Choosing the snowball and then rearranging when it feels slow. Pick an order and keep it; the order matters less than the constancy.
• Skipping the small cushion first. The next car repair goes on the card that was just paid down.
• Ignoring a promotional rate that is about to end. A 0% balance that becomes 27% next month is the highest-rate debt next month; the avalanche order changes on that date.
• Paying extra on the mortgage first. It is usually the lowest rate and the largest balance, so it comes last under either method.

Common questions

Is the snowball or the avalanche better? The avalanche pays less interest in every case; the snowball clears the first debt sooner in most cases. On the worked example the avalanche saves $161 over 27 months and the snowball's first payoff is seven months earlier. Choose by which of those you need more, and remember that both beat minimums-only by years.

How much faster is the avalanche? Often not faster at all in total. With the same monthly payment, both methods finish within a month or two of each other; the avalanche's advantage is the interest saved, not the date. The date is set by the size of the total payment.

What if two debts have the same rate? Order them by balance, smallest first, which is the snowball's rule applied inside the avalanche. The interest cost is the same either way, and the earlier payoff is free.

Should I pay off debt or build savings first? A small cushion first, one month of essentials or a fixed starter amount, then the debt with everything extra, then the rest of the savings. Without the cushion, every surprise adds a balance to the list; with a full emergency fund built first, the high-rate debt charges interest for a year longer than it needed to.

Does it matter which method I use for student loans and a car loan? Less, because their rates are usually lower and closer together than cards. Put the cards first under either method, then the loans in rate order. A low-rate loan is often the last debt paid under both methods, and that is correct.

How Zypper handles this

Zypper keeps the balances and the payments in view. Credit cards and loans, including auto, student, and personal loans, connect alongside checking and show their balances on the liability side of net worth, charted over time, so the total falling by the principal each month is a line rather than a set of statements. Each card's payment and each loan payment is identified as a recurring group with its next expected date and amount, and a card payment is linked to its checking side as one transfer so it never reads as spending. The extra payment is a budget category with a fixed amount, and Left to budget, your expected income minus everything budgeted for spending, shows whether the plan still fits after it. See Net worth tracking, Supported account types, and Recurring transactions and bill tracking for the details, or get started with Zypper to watch the total fall.