When you have more than one debt, you pay the minimum on all of them and put every extra dollar on one. The only question is which one gets the extra first. There are two classic answers, and the right one depends on you as much as on the math.
The two methods
- Avalanche: extra money goes to the debt with the highest interest rate. Mathematically, this costs the least.
- Snowball: extra money goes to the smallest balance. You clear whole debts sooner, which many people find motivating.
In both, once a debt is gone, its minimum payment rolls into the next target. That rolling payment is what speeds things up.
A worked example
| Debt | Balance | APR | Minimum |
|---|---|---|---|
| Credit card | $5,200 | 24.9% | $130 |
| Personal loan | $2,400 | 11.0% | $75 |
| Store card | $650 | 18.0% | $25 |
| Car loan | $6,800 | 6.5% | $190 |
Total owed: $15,050. Minimums add up to $420, and this person can put $650 a month toward debt in total, so there's $230 of extra each month.
| Avalanche | Snowball | |
|---|---|---|
| Months to debt-free | 27 | 28 |
| Total interest paid | $2,187 | $2,568 |
| First debt cleared | month 18 | month 3 |
Avalanche saves $381 in interest and finishes a month sooner. Snowball clears its first debt in month 3, compared with month 18 for avalanche.
Which one should you pick?
The math favours avalanche every time the rates differ. But a plan only works if you follow it for two years. Research on real debt repayment by David Gal and Blake McShane (2012) found that people who closed out more individual accounts were more likely to go on to clear their whole debt, even after accounting for how much they paid. Small wins seem to keep people going.
- Pick avalanche if you're steady with plans, or if one debt has a much higher rate than the rest.
- Pick snowball if you've started and stopped before, or if you have several small balances that could be gone within months.
- A middle path: clear one or two tiny balances first for momentum, then switch to avalanche.
Getting started this week
- List every debt with balance, rate and minimum.
- Decide the total you can pay each month. Keep a small emergency buffer first.
- Choose the order and write it down.
- Automate the minimums; pay the extra by hand so you see progress.
Assumptions: the four debts above at fixed rates, interest charged monthly, no new spending on the cards, and a constant $650 a month. Real cards may calculate interest daily and change rates.
Sources
- David Gal and Blake B. McShane, “Can Small Victories Help Win the War? Evidence from Consumer Debt Management”, Journal of Marketing Research 49(4), 2012. Link
This article is general education, not personal financial advice. Figures in worked examples are calculated from the assumptions stated with them and are not forecasts.
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