Avalanche or snowball? Two ways to pay off debt

If you owe money in more than one place, there's a question that comes before all the others: which debt do you pay off first?

Two methods get talked about the most. They're called the avalanche and the snowball. Both work. They differ in what they ask of you.

This is general education, not advice. Your debts, rates and situation are your own, so please check big decisions with a licensed professional.

What both methods have in common

• You keep paying at least the minimum on every debt, every month. Missing a minimum can bring fees, a higher rate and harm to your credit.
• You find an extra amount to put toward debt each month, on top of the minimums.
• You aim all of that extra money at one debt at a time.
• When that debt is paid off, you take everything you were paying on it, its minimum plus the extra, and add it to the next debt on your list. Your payment keeps growing as it rolls down the list.

The only difference between the two methods is the order of that list.

The avalanche: highest interest rate first

List your debts from the highest interest rate to the lowest. Put the extra money toward the one at the top.

Why people choose it: interest is the price of carrying debt. Paying down the most expensive debt first generally means you pay the least interest overall. On paper, it's usually the cheaper choice.

The catch: if your highest-rate debt is also a large one, it can be a long time before you see any debt disappear. Some people lose heart before they get there.

The snowball: smallest balance first

List your debts from the smallest balance to the largest, whatever their interest rates. Put the extra money toward the smallest.

Why people choose it: your first debt is gone quickly. That early win, and having one fewer bill to think about, keeps many people going. Supporters of the snowball argue that a plan you stick with beats a better plan you abandon.

The catch: you may pay more interest overall than with the avalanche, especially when a large debt carries a high rate.

A made-up example

Here's an imaginary household with three debts. These numbers are invented only to show how the order changes.

• A credit card: $7,500 owed, at 22% interest
• A store card: $1,200 owed, at 18% interest
• A car loan: $12,000 owed, at 6% interest

The avalanche starts with the credit card, because its rate is the highest. Then the store card, then the car loan.

The snowball starts with the store card, because it's the smallest and will be gone soonest. Then the credit card, then the car loan.

Same debts, same monthly amount, different first target.

Which one is right for you?

The honest answer: the one you'll stick with. A few questions can help you decide.

• Do you need to see progress to stay motivated? The snowball gives you early wins.
• Is one debt's rate much higher than the rest? The bigger the gap between rates, the more the avalanche tends to save.
• Is your smallest debt also your highest-rate debt? Then both methods agree, and you can simply start.

Some people mix the two: they clear one or two tiny balances for a quick win, then switch to highest rate first.

A few things to watch for

• Promotional rates end. A 0% offer usually has an end date, after which a higher rate applies. Know when yours ends, and where it falls on your list after that.
• Not all debts are alike. Some, such as certain student loans or a mortgage, can come with protections, tax rules or terms that make them different from credit card debt. A licensed professional can help you weigh those.
• Try not to add new debt while paying off the old. Otherwise the list never gets shorter.
• Keep a small cash cushion. Without one, a surprise bill can land right back on a credit card.

What this has to do with FIRE

Every dollar that goes to a debt payment is a dollar that can't go toward your freedom. When the last debt is gone, the whole amount you were paying each month is free to save and invest.

Matt W, uFIRE's founder, finished his training and bought his practice about a million dollars in debt. He worked six days a week for a long time, and it took him about ten years to pay it off. That long stretch is what eventually let him cut back to one day a week at 40. Read his story.

Curious what paying it off does to your timeline? The Freedom Date calculator shows it in two minutes.

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