Debt avalanche or snowball: which pays off debt faster?
Short answer
The avalanche pays debts off in order of highest interest rate first, and the snowball pays the smallest balance first. When rates are fixed and you pay the same total every month, the avalanche costs the least interest and finishes no later, because high-rate balances grow fastest. The snowball gives earlier wins, which some people find easier to keep up.
Both methods work the same way. You pay the minimum on every debt, then put all the remaining money from your fixed monthly debt budget on one target debt. When that debt is gone, its payment rolls onto the next. The only difference is how you choose the target.
- Avalanche: target the debt with the highest interest rate first.
- Snowball: target the debt with the smallest balance first.
Why does the avalanche method cost less interest?
Interest is charged on what you owe at each rate. Every dollar paid against the 24 percent balance saves more than a dollar paid against a 9 percent one, so concentrating the extra money on the highest rate reduces total interest as much as possible. With fixed rates, no fees and the same total payment each month, no other order costs less or finishes sooner.
How do the avalanche and snowball compare on three debts?
Three debts and a fixed budget of $500 a month. Interest is calculated monthly at one-twelfth of the annual rate and added before each payment, and no new charges are made.
| Debt | Balance | Rate | Minimum |
|---|---|---|---|
| A | $900 | 9 percent | $30 |
| B | $4,800 | 24 percent | $100 |
| C | $2,400 | 15 percent | $60 |
The minimums add up to $190, leaving $310 for the target debt each month.
| Avalanche (B, then C, then A) | Snowball (A, then C, then B) | |
|---|---|---|
| Debt-free after | 19 months | 20 months |
| Total interest paid | $1,257 | $1,606 |
| First debt cleared | Debt B, month 14 | Debt A, month 3 |
The avalanche saves about $348 and one month. In exchange, the snowball removes a whole debt in month 3 rather than month 14. Whether that is worth about $348 depends on you.
Why can the snowball method still help people stick with it?
The snowball loses on arithmetic but can win on behavior. A study of customers of a debt settlement firm, by Gal and McShane (2012, Journal of Marketing Research), found that closing accounts was associated with eliminating debt, regardless of the dollar balance of the accounts closed. Their interpretation is that finishing discrete subtasks may motivate people to keep going. It is one study of one population, and it does not show that the snowball beats the avalanche for everyone.
If the cost difference in your own numbers is small, the method you will keep following is the better one. When the highest-rate debt is also the smallest, the two methods are identical.
How do I compare avalanche and snowball in a spreadsheet?
For a single debt, the number of months to clear it is =NPER(rate/12, -payment, balance). For the full comparison you need a month-by-month schedule: one row per month, a balance column for each debt, and a rule that sends the leftover budget to whichever debt is the current target. Sort your debts by rate for the avalanche and by balance for the snowball, then compare total interest and the month the last balance reaches zero.
Check two things before choosing. First, make sure each minimum payment exceeds that month's interest, or the balance will not fall. Second, look for fees, promotional rates that end and loans with prepayment penalties, which can change the best order.
The debt payoff planner sheet compares both methods, and the blog post on debt payoff with avalanche, snowball and NPER goes through the formulas.