Debt Snowball vs Avalanche: What Each Costs and Which to Choose

The two methods in one paragraph each

Both methods start the same way: list every debt, pay the minimum on all of them, and send every spare dollar to one target. When the target is paid off, its whole payment rolls onto the next target. They differ only in how the target is chosen.

1. 01
   Debt avalanche. Target the debt with the highest interest rate first, then the next highest. Interest is the price of debt, so removing the most expensive debt first costs the least in total. The Financial Consumer Agency of Canada gives the same advice: pay down your highest-interest debts first.
2. 02
   Debt snowball. Target the smallest balance first, whatever its rate, then the next smallest. You close an account sooner, have one fewer payment to manage, and see proof the plan works. You usually pay somewhat more interest.

What the difference costs: a worked example

The Federal Reserve Bank of St. Louis ran both methods on one borrower with two credit cards and $200 a month for debt. We re-ran the same numbers month by month and got the same result.

Source: Federal Reserve Bank of St. Louis, Page One Economics, 1 Feb 2023. Card A: $5,000, 20% APR, $85 minimum. Card B: $2,500, 14% APR, $40 minimum.

The avalanche wins by $580 and three months here. The gap grows when rates are far apart and shrinks when they are close. With every debt near the same rate, the two orders finish within weeks of each other and the snowball’s early win comes almost free. To see the gap on your own debts, enter them in the debt payoff calculator.

What the research says about sticking with it

1. 01
   Most people split payments. The St. Louis Fed article cites research in the American Economic Review (Gathergood and co-authors, 2019) finding that most borrowers repay cards roughly in proportion to their balances. In the example above that costs $291 more than the avalanche.
2. 02
   Closing accounts keeps people going. A study of consumers in a debt settlement program by David Gal and Blake McShane (Gal & McShane, Journal of Marketing Research, 2012) linked closing individual accounts with a better chance of clearing the whole debt.
3. 03
   Advice books lean snowball. A review of 50 top personal finance books (Choi, Journal of Economic Perspectives, 2022), also cited by the St. Louis Fed, found that about half of the books covering the question recommend paying the smaller balance first.

The St. Louis Fed sums it up: the highest-rate method is the cheapest only if people stick to it, and the best strategy is the one that gets the total paid off.

How to choose in two minutes

1. 01
   Is your smallest debt also your highest-rate debt? Then both methods start in the same place. Pay it first and stop deliberating.
2. 02
   Are your rates within a few points of each other? Take the snowball. The interest difference is small and the first closed account comes sooner.
3. 03
   Is one debt far more expensive than the rest? A card at 20%+ next to a car loan at 6% is where the avalanche saves real money. Take it if you can keep going without an early win.
4. 04
   Have you quit a payoff plan before? Take the snowball, or start with one small balance and then switch to the avalanche.

The hybrid

Clear one or two tiny balances first for momentum, then pay the rest in avalanche order. You give up a little of the interest saving and keep most of it. Write the order down once, and only revisit it when a debt is paid off.

Where both methods fail

1. 01
   No money beyond the minimums. Both methods need a surplus to aim. If there is none, the job is the budget first; see budgeting while paying off debt.
2. 02
   New charges on the cards you are paying. Paying a card down while spending on it moves the balance in a circle. Pay with debit or cash while the card is the target.
3. 03
   The freed payment gets spent. When a debt closes, its payment has to move to the next target the same month, or the method stops working.
4. 04
   No buffer. One car repair on a credit card undoes months of progress. A small starter emergency fund protects the plan.

Where Finman fits

Finman keeps each debt with its balance, interest rate, lender and due date next to your budgets and spending. You log each payment and see what is paid, what is left and which debt is overdue; due dates show in the calendar. The AI CFO’s savings plan lists your debts by size and suggests an order. To compare snowball and avalanche dates, use the calculator; to track the plan you pick, use the debt payoff planner. Finman is a tracking and planning tool; for debts you cannot cover, the Financial Consumer Agency of Canada points to non-profit credit counselling.

Related reading: Debt payoff calculator · How to pay off debt fast · Best debt payoff apps · Budgeting for debt payoff