Once you’ve made the smart decision to get serious about paying off your debt there are two main strategies to choose from: The Snowball Method and The Avalanche Method. The goal of this post is to help you decide which debt payoff strategy is best for you. I’m also going to share which method I’m using and why that method is best for me.
THE 2 WAYS TO PAY OFF DEBT: WHICH ONE IS RIGHT FOR YOU?
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If you’re new here, welcome!
Let me tell you a little about me.
I used to be terrible with money. But I worked hard, and with the help of my super responsible husband I was able to change my money wasting ways. Together we have paid off over $93,000 of our debt in 3.5 years.
We’re not debt free yet, there’s still about $11,000 left to go. But the light at the end of the tunnel is clear. We’ll be debt free soon and when we are, we’re never going back. Also, there will be a party.
This is an updated version of a post that I wrote 2 years ago. At the time I thought these 2 strategies were the only effective debt payment options. I’ve since discovered a 3rd debt strategy that no one is talking about.
WHAT ARE THE 2 DEBT PAYOFF STRATEGIES?
THE DEBT SNOWBALL
The Debt Snowball Method is a very popular method for paying off debt.
To use this debt payoff strategy, you need to start by listing all of your debts in order of lowest amount owed to highest amount owed. For this method, you don’t need to worry about the interest rates.
Then you’ll make only minimum payments on all of your debts except for the lowest one. You’ll pay as much as you reasonably can to the lowest one and pay it off as quickly as possible.
After you’ve killed off the lowest debt, you’ll take all of the money you were putting towards that debt and apply it to the next smallest debt. This cycle continues until all of your debt is paid off.
Dave Ramsey is the founding father of The Snowball Method.
Here is a post from his website about The Snowball Method that fully explains this process: The Snowball Method – Dave Ramsey.
MY TAKE ON THE DEBT SNOWBALL
It really depends on your circumstances, but this is definitely a great debt strategy for someone who is feeling overwhelmed by debt.
If you have many debts with varying balances this method could help you to focus on one debt at a time.
I think the biggest benefit of The Snowball Method is that it can be very encouraging to see each small debt disappear.
Eliminating a debt feels incredible and it is likely to motivate you to continue paying off the rest of your debts.
You’ll probably pay a little more (or maybe a lot more depending on your circumstances) in interest in the long run. That’s something that needs to be weighed against the motivation benefit of this method.
THE DEBT AVALANCHE
The Debt Avalanche strategy starts with listing your debts from highest interest rate to lowest interest rate, regardless of the total amount owed on the debt.
You make minimum payments on all of your debts, except for the debt with the highest interest rate.
Then, attack the highest interest rate debt with full force by sending every available spare penny you can find to this debt.
It’ll probably take you a while to pay off your highest interest rate debt.
When you’ve eliminated it, you’ll move on to attack the debt with the next highest interest rate. This process will continue until all your debt is squashed.
MY TAKE ON THE DEBT AVALANCHE
The Debt Avalanche allows you to pay off your debt faster. This is because your debts will accumulate less interest over time.
You will pay less in interest if you use The Debt Avalanche because your higher interest rate debts will be eliminated first.
In my opinion, a prerequisite for choosing The Debt Avalanche Method is to already be extremely motivated to pay off your debt.
You won’t get the exciting boost that comes with eliminating small debts along the way. However, if that isn’t something you need because you are already motivated, The Debt Avalanche could be right for you.
Update: Turns out, there’s actually a THIRD debt strategy – but no one is talking about it! Read about the third debt strategy here.
WHAT YOU SHOULD NEVER DO WITH ANY STRATEGY
Whichever debt payoff method you’ve decided is best for you, the important thing is to focus your extra payments (all payments beyond minimum payments) on just one debt at a time.
Paying a little extra on each loan isn’t going to help you very much. You’ll lower each debt a tiny bit more each time, but you’re not going to get to a point where you’ve completely paid off a debt.
The common goal of both the Snowball and Avalanche Methods is to eliminate one of your debts as quickly as possible.
In doing so, you free up funds to forcefully apply to another debt. This keeps you motivated and it’s the most effective way to eliminate your debt.
Which debt payoff method was right for me?
At the time that my husband convinced me to get serious about becoming debt free, we had 3 debts altogether (excluding our mortgage). We had 2 small-ish car loans and my massive, previously consolidated student loan.
The car loans had very low interest rates. My gigantic student loan had an interest rate of 6.5%.
The student loan was really what was killing us. So, we were super motivated to pay that off as quickly as possible.
We also considered our feelings about our debts. We loved our cars and didn’t mind paying those debts regularly. That felt better because paying for something that we used every day. We (mostly I) had a deep hatred for my student loan. Sure, I use my education and I’m glad I went to school, but looking back I know I made A LOT of mistakes when it came to financing my education. Plus I graduated several years ago. I didn’t want to still be paying off my education instead of being able to save for the education of my children in the future. The student loan had to go!
So we decided on paying off our debt with the…
Debt Avalanche Method
We decided the Debt Avalanche was best for us because we were already motivated to get rid of our debt as quickly as possible. For us, we were focused on the big picture. We wanted to spend as little as possible on interest on our loans.
Which debt payoff method is right for you?
The Snowball Method might be right for you if you…
- want to be motivated to continue paying off your debts or you want the encouragement that comes from successfully paying off a debt
- have several debts of varying sizes
- don’t have any debts that have a super high interest rate (3-4x your other interest rates)
The Debt Avalanche Method might be right for you if you…
- are already super motivated to pay off your debts
- only have a few (2-4) debts
- have one debt with a much higher interest rate (3-4x) your other debts
- simply hate one debt more than the rest
Money is Personal. That includes your Debt.
Eliminating your debt isn’t a one-size-fits-all process. What’s right for someone else might not be right for me. And what’s right for me might not be right for you. You need to take a close look at your own debts.
I have a free printable in my Freebie Resource Library that can help you see each individual debt that you owe so that you can decide which debt payoff method is right for you. Grab it here!
Think about it. Continue to read about it. Then decide on the best plan for you.
Need some support on your debt crushing adventure? Leave a comment below.
Don’t click away so soon! Here are some posts about debt & money:
How to Create a Savings Schedule you can stick to {with free printable}
The Beginner’s Guide to Being Frugal
How to Analyze and Cut Expenses
You can read more about my story here: A Spender and A Saver Fall in Love
I prefer the avalanche method. With the snowball method, you could end up paying more over time especially if your highest debt amount also had the highest interest.
Great post! I love Dave Ramsey. He gives sound advice. Thank you for sharing these great tips at Dishing it and Digging it link party. We love having you.
Aside from winning the lottery, these both seem like really good options…LOL! Thanks for also helping me decide which would be best for my situation! We love when you share your ideas with us at Share The Wealth Sunday.
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I have used the debt Snowball before to pay off debt when I was doing the Total Money Makeover it worked great for us them. However, the Debt Avalanche might actually work better for us now. Great point about not dividing your efforts between multiple debts. Very through and well done post. Really enjoyed it.
I think I might had gotten lucky when paying off my debt because my smallest balance had the highest interest rate and my largest balance had the lowest rate. So I really didn’t have to choose a method. But when I am talking to friends or co-workers, I always recommend the snowball method because I have noticed most of them aren’t really committed to getting their finances in order.
I lean towards the avalanche method, but whatever works for you is really the right choice. The important thing is to get to work on paying down the debt and to keep at it.
Great post! This is a really good breakdown of the two methods and I love your points at the end about who each method might work best for. Good luck with your student loans!
I’m partial to the avalanche method, but I hate debt and don’t like to sit on it longer than I have to…I find i don’t need the “motivation” that the snowball method provides!