Paying off debt: the avalanche or the snowball method?
You have several debts and can put a little extra towards them each month, on top of the instalments. The question is which one to overpay first. There are two popular answers. We ran both on the same example — and the result is less dramatic than the arguments online suggest.
What the two methods share
Both work the same way in three respects:
- You pay the minimum instalment on every debt — none of them is neglected.
- All the extra money goes to one chosen debt instead of being spread thinly.
- When that debt is paid off, its instalment moves on to the next one. The overpayment grows with every debt you close — hence the “avalanche” and the “snowball”.
The only difference is which debt comes next in the queue.
The avalanche: highest interest rate first
The extra money goes to the debt that costs the most interest relative to its balance — the one with the highest interest rate. Mathematically this is always the cheapest order: every dollar of overpayment stops the most expensive interest.
The snowball: smallest balance first
The extra money goes to the debt with the smallest balance, whatever its rate. It usually costs a little more interest, but the first debt disappears sooner. This is not just about mood: a study published in the Journal of Marketing Research (Gal and McShane, 2012) found that people who closed individual debts one by one were more likely to see the whole repayment through.
An example: three debts, $1,300 a month
Suppose these are the debts:
| Debt | Balance | Interest rate | Minimum payment |
|---|---|---|---|
| Credit card | $6,000 | 18.9% | $200 |
| Personal loan | $15,000 | 9.9% | $450 |
| Instalment loan | $3,000 | 12.0% | $150 |
The minimum payments add up to $800. On top of that we put $500 of overpayment each month — $1,300 towards debt in total. Simulated month by month:
| Approach | All paid off | Total interest | First debt cleared |
|---|---|---|---|
| Avalanche (highest rate first) | after 21 months | $2,470 | credit card — month 10 |
| Snowball (smallest balance first) | after 21 months | $2,586 | instalment loan — month 5 |
| Minimum payments only, no overpayment | after 41 months | $5,163 | — |
What it shows
- Overpaying at all is what makes the difference. $500 a month cuts repayment from 41 months to 21 and roughly halves the interest — with either method.
- The difference between the methods is small: $116 in favour of the avalanche in this example, with the same end date.
- The snowball brings an earlier win: the first debt is gone after 5 months instead of 10.
In practice: if you know you will stick with it, choose the avalanche. If you need early proof that it works, the snowball costs only a little more. The bigger the gap between the rates — say, a 20% credit card next to a mortgage — the more clearly the avalanche wins.
What to watch out for
- Compare interest rates, not the APRC. Interest on the balance is charged at the nominal rate. The APRC also includes costs paid at the start, such as an arrangement fee.
- Check your agreement for an early repayment fee. Some loans have one, and it changes whether overpaying pays off.
- Build a small emergency fund first. Overpaying every last dollar often ends with the first unexpected repair going straight back on the credit card.
How to work it out for your own debts
In Portfolio Tracker you add each debt with its balance, interest rate and instalment, and choose a strategy in the preferences: highest interest rate first (avalanche) or smallest balance first (snowball). The payoff queue shows the order to overpay in, how much interest each debt costs, and how many instalments each balance has left. You log each payment with one button — the balance for that month falls and the instalment is added to the month’s expenses.
Method: a monthly simulation — interest charged each month on the current balance (annual rate ÷ 12), payments made at the end of the month. The example is for illustration; an actual schedule depends on the agreement. Educational material, not financial advice.