How to Get Out of Debt With the Snowball and Avalanche Methods

For many of us, debt is a necessary financial tool that we will likely utilize in our adult lives. We often rely on various forms of debt to pay for our education, purchase a family home or car, and even cover unexpected expenses such as medical bills or home repairs. In fact, among American households with debt, the average family currently has more than $155,622 in outstanding balances.

But just because debt is common doesn’t mean that it can’t feel overwhelming at times. And if your balances are costing you money in interest each year, affecting your credit score, and/or accounting for a sizable portion of your monthly income, you’ll probably start looking for ways to strategically pay off that debt.

Whether your debt is in the form of credit cards, personal loans, auto loans, or even student loans, both the debt snowball and the debt avalanche can help you pay down your balances faster and for less money. Here’s a look at how each of these strategies work and how to choose the right one for you.

What is the Debt Snowball?

With the debt snowball method, you make only the minimum payment due on all but one of your balances. Any extra funds each month are directed toward aggressively tackling your smallest debt balance first. Once that debt is satisfied, your focus shifts to the next-smallest balance until it is paid off, and so forth. 

So, say you have the following balances:

• Credit card #1: has an outstanding balance of $8,372, APR of 15.95%, and minimum monthly payment of $271

• Credit card #2: has an outstanding balance of $3,901, APR of 18.0%, and minimum monthly payment of $170

• Auto loan: has an outstanding balance of $23,645, APR of 5.45%, and a minimum monthly payment of $484

• Personal loan: has an outstanding balance of $2,118, APR of 8.20%, and minimum monthly payment of $317

Your minimum monthly payments amount to $1,242. But let’s pretend that you actually have $1,600 in your budget each month — your minimum payments plus an extra $358 — that you can put toward your debt snowball. Where do you start?

Well, with the debt snowball, you could focus on paying off your personal loan first, since it’s the lowest balance. You’d make the minimum payment on the other three accounts, but direct that extra $358 toward paying down the principal on the personal loan. 

Here’s how your payment allocation would look:

• Credit card #1: has an outstanding balance of $8,372, APR of 15.95%, and minimum monthly payment of $271

• Credit card #2: has an outstanding balance of $3,901, APR of 18.0%, and minimum monthly payment of $170

• Auto loan: has an outstanding balance of $23,645, APR of 5.45%, and a minimum monthly payment of $484

• Personal loan: has an outstanding balance of $2,118, APR of 8.20%, and minimum monthly payment of $317 + $358 extra = $675 total

You’d be making more than double the required payment on your personal loan, paying down the principal balance in just a matter of months. Then, once the personal loan is cleared off (and you do a little celebratory dance!), you can direct that payment amount — the entire $675 you had been paying — toward your next-smallest balance: credit card #2. 

• Credit card #1: has an outstanding balance of $8,372, APR of 15.95%, and minimum monthly payment of $271

• Credit card #2: has an outstanding balance of $3,901, APR of 18.0%, and minimum monthly payment of $170 + $675 = $845

• Auto loan: has an outstanding balance of $23,645, APR of 5.45%, and a minimum monthly payment of $484

• Personal loan: has an outstanding balance of $0, APR N/A, and minimum monthly payment of $0

Wash, rinse, and repeat. Your progress would then build and build, “snowballing” until credit card #1, and then your auto loan, are also paid off. 

The premise behind the debt snowball method is that people are motivated by successes and milestones. Paying off debt can often take years of effort and sacrifices, and it sometimes might feel like very little progress is being made. Instead of paying a tiny bit extra on each balance, focusing all of your effort on the smallest one can help you progress sooner and encourage you along your debt-tackling journey.  

What is the Debt Avalanche?

On the other hand, you have the debt avalanche method. Similar to the debt snowball, this method has you focus all of your extra funds toward one single debt, while making minimum payments on all of the other balances. Unlike the debt snowball, though, the debt avalanche focuses on the balance with the highest interest rate first. 

The reason? Well, you’ll save more money this way. 

If you don’t need frequent little victories to motivate you, the debt avalanche may actually be the better option for you as it gets you out of debt for less money. In some cases, it might even get you out of debt sooner than the debt snowball would.

So with the same example debts above, here’s how you would focus your efforts with the avalanche method:

• Credit card #1: has an outstanding balance of $8,372, APR of 15.95%, and minimum monthly payment of $271

• Credit card #2: has an outstanding balance of $3,901, APR of 18.0%, and minimum monthly payment of $170 + $358 extra = $528

• Auto loan: has an outstanding balance of $23,645, APR of 5.45%, and a minimum monthly payment of $484

• Personal loan: has an outstanding balance of $2,118, APR of 8.20%, and minimum monthly payment of $317

How to Choose: Debt Snowball vs Debt Avalanche

So, between the debt snowball and the debt avalanche, which is better for you and your unique situation? You’re the only one who can truly answer that question, but here are some things to think about.

• May pay off individual balances faster, giving you little snippets of encouragement early in your journey.

• Could potentially improve your credit score faster.

• Might result in more overall interest paid. 

• Can take longer to see progress or reach payoff milestones.

• Saves you more money in interest charges.

• Can potentially get you out of debt faster in the end.

Only you know what sort of motivation you need. Do you work best when celebrating little victories along the way? Or is paying less in interest charges the only encouragement you need? 

Alternatives for Getting Out of Debt Faster (and for Less)

In addition to — or even in place of — either of these methods, there are a few other options for getting out of debt earlier or for less interest. These include:

• Consolidating and/or refinancing balances with a low-APR personal loan

• Taking out a HELOC or home equity loan against your house, using those funds to pay off other high-interest balances.

• Utilizing a 0% APR balance transfer offer on a credit card to shift over balances and pay them off without additional interest.

Depending on how much you owe and to whom, getting out of debt can sometimes be an arduous journey. In many cases, it can be hard to know where to start and how to focus your efforts. This is where the debt snowball and debt avalanche methods come into play.

Spend some time considering how you are best motivated, and what your overall debt repayment goals are. This will help you decide which method is best for you, and how to go about tackling your outstanding balances.