If you have several debts, the order in which you pay them off changes how much interest you pay and how quickly you feel progress. The two most common methods are the debt snowball and the debt avalanche. Both work if you keep paying consistently.
The basic idea
Both methods start the same way. List every debt, pay the minimum on each one, and put any extra money toward a single target debt. When that debt is cleared, the money you were paying on it moves to the next one.
The only difference is which debt you target first.
Debt snowball
With the snowball, you pay off the smallest balance first, regardless of interest rate. Quick wins help many people stay motivated. It suits anyone who has given up on past debt plans or finds it hard to see progress.
Debt avalanche
With the avalanche, you pay off the debt with the highest interest rate first. This usually costs less in total interest, because the most expensive debt stops growing sooner. It suits people who are comfortable with a slower start and who are motivated by the numbers.
A worked example
Suppose you have three debts and an extra amount each month to put toward them:
- Credit card A: small balance, very high interest rate
- Personal loan B: medium balance, moderate interest rate
- Consumer loan C: largest balance, lowest interest rate
The snowball clears the smallest balance first. In this example that is card A, and the avalanche also starts with card A because it has the highest rate. The two methods agree when the smallest debt also has the highest rate. They diverge when a small debt has a low rate or a large debt has a high rate.
Run your own numbers in a simple spreadsheet. List each balance, rate and minimum payment, then compare the total interest under each method.
How to choose
- Choose the avalanche if the interest rates on your debts differ a lot and you can stay disciplined without quick wins.
- Choose the snowball if you need early momentum to keep going, or if the interest rates are close together.
- Either method beats paying minimums on everything and hoping for the best.
Steps to start this month
- List every debt with its balance, interest rate and minimum payment.
- Check you can cover all minimum payments. If not, contact the lender early, before you miss one.
- Choose snowball or avalanche and stick with it for at least three months.
- Automate the minimums, and set a date to send the extra payment to the target debt.
- When a debt is cleared, move its full payment to the next target.
Protect the plan
- Keep a small emergency buffer, so a surprise expense does not force new borrowing.
- Avoid new debt while you repay old debt. Pause card use if you can.
- Ask about a lower rate or a balance transfer if your bank offers one. Read the fees and the rate that applies after any promotional period first.
Frequently asked questions
Is debt consolidation better than either method?
It can be, if the new loan has a lower rate and you do not run up the old balances again. Compare the total cost, including fees, before you agree.
Should I stop investing while I repay debt?
Usually, pay off high-interest debt first. Keep any employer retirement contribution you are matching, because that is effectively free money.
What if I miss a payment?
Contact the lender quickly. Many will agree to a short arrangement, but missed payments can still add fees and affect your credit score.
This guide is for general information only. For advice on your own debts, speak to a qualified financial adviser or a non-profit credit counselling service.
