Debt Snowball Method VS. the Debt Avalanche – NSC Series

Debt Snowball Method VS. the Debt Avalanche

I’m sure you’ve heard the terms before, especially if you are fighting tooth and nail to get rid of that debt. The debt snowball method and the debt avalanche have been around for as long as I can remember. The big question is – which one is better?

My wife and I have been aggressively fighting our debt for a few months now, though we have had debt for much, much longer than that. We worked toward paying them off, but we didn’t have a system and our efforts kind of… fell flat.

I’m sure all you readers can relate. You work and work and work to pay off these debts, living paycheck to paycheck and sacrificing as much as you can, but you still aren’t reaching your goals. Your debts are threatening to crush you, they’re emotionally killing you, they’re holding you back, but no matter what you do, you can’t seem to get ahead.

What’s the problem? Why can’t you make a dent in those debts?

Well, there could be a lot of reason – like not building a budget that’s right for your situation, not implementing a cash budget system, or even not stocking up enough in your emergency fund to cover unexpected expenses. I’m betting there’s a bigger reason than that though:

If you aren’t making progress on your debt repayment, you probably don’t have a good debt repayment method in place.

Once my wife and I started utilizing our debt repayment method, we made huge strides in our debt repayment leading to paying over $20,000 off in a few short months! You could be debt-free by now if your debts were $20,000 or less, but even if they’re not, you could be well on your way to debt freedom.

As I said before, the biggest question to consider in this scenario is which debt repayment system is better?

Let’s take a look at the debt snowball method VS. the debt avalanche.

Debt Snowball Method VS. Debt Avalanche Method - www.diyjahn.com

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As some of you may know, we are in the midst of our first ever No Spend Challenge (NSC) which started January 1.

The short story is that my wife and I racked up a ton of debt (read how HERE) and want to pay it off as quickly as possible so that we can live our dream lives (read about our goals HERE). This challenge will help us learn about living frugal, saving money, and paying off our debt faster.

Visit our post, Frugal Living at its Finest: the No Spend Challenge, to view why we are doing the challenge, what the challenge entails, and the rules.

The hardest thing about budgeting and frugal living is doing it alone and that’s why we want to invite you all to join us on our NSC. Sign up below to opt-in to our email community, filled with exclusive tips and tricks for saving money to survive living frugal during your NSC month.

Follow our rules or make your own! Join for one week or the entire month! We know that not everyone is in the same situation we are in. Stick with the No Spend Challenge for as much or as little as you are able in your situation and don’t be afraid to hop on after the starting date (it’s never too late to join in on the fun!).

We’ll be taking the challenge right alongside you – with daily blog posts, encouragements, and exclusive email information and communication: this will be the single, greatest choice you make to jump start the New Year.



Debt Snowball Method VS. the Debt Avalanche

The debt snowball method was designed by Dave Ramsey (from what I can tell) who, by the way, is an awesome financial advocate if you are looking for more ways to save money. I truly recommend reading his books, listening to his podcasts, and overall just learning from him. I will admit, though, that there are certain areas in which I agree wholeheartedly with Mr. Ramsey, and other areas where I disagree, just as wholeheartedly. I digress.

On the other hand, there’s the debt avalanche system which was designed by who-knows-who, but is sometimes referred to as the “debt stacking method.”

Now, I’ll admit right up front that both of these methods have some pros and cons. As with all of your financial situations, remember that any opinions are up to you. It’s personal finance, after all. You have to make a personal choice as to how you handle your finances and one system may work better than another given your financial situation.

Let’s take a look at both of these systems more in depth before we compare and contrast the two.

Debt Snowball Method Overview

The debt snowball method is designed to help you overcome your debt by playing into psychology. Therefore, you begin by paying minimum payments toward all of your debts.

Let’s look at George as an example. He owes debts to:

  • School loan: $45,000
  • Car loan: $5,500
  • Credit Card: $12,000

His minimum payments are $450, $212, and $326 respectively. If he were to simply put the minimum payments toward debt each month, it would take him a total of 139 months to pay off his debt and would cost him over $24,000 in interest.

But George is smart and knows that he can pay them off way earlier than that. He decides to start paying extra toward them each month.  He has budgeted a total of $1,200 to use toward debt.

His total minimum payments come to $988 which means he has an extra $212 to utilize toward paying off his debts. Now, in all debt repayment methods you should always ensure you can make the minimum payments before adding extra to any other debt.

In the debt snowball method, the goal is to choose the smallest debt first and begin throwing all of your extra funds at that debt. In this case, George would pay minimum payments for both the credit card and the student loan, but starting putting his extra $212 toward the car, making his monthly payments toward the car $424.

Once the car is paid off, he would begin putting the entirety of the $424 toward the credit card loan (the second smallest debt) and once that’s paid off, the whole $1,200 would go toward the student loan.

Now, what’s the point of paying off debt this way? Well, it saves both time and money! By using the debt snowball method, George’s debts would take roughly 64 months to pay off (saving over 75 months!) and would only cost him around $13,000 in interest (saving him over $10,000 in interest!).

Here are the basics of the debt snowball method:

  • Continue paying minimum payments on all debts
  • Focus your attention on the smallest debt
  • When one debt is paid off, add all of the payments from that debt to the next smallest debt and continue paying

The goal is to pay off the smallest debts first in order to give you wins right away. Once you are excited because you have paid off a smaller debt, you’ll be more capable and motivated to pay off the next debt, and so on and so forth.

Debt Avalanche Method Overview

Similar to the debt snowball method, the debt avalanche asks you to continue paying minimum payments on all of your debts and to focus your attention on a singular debt. When that debt is paid, you snowball your payments to the next. The big difference between the two is that the debts are paid according to interest rate rather than debt amount.

Let’s look at George as an example again:

  • School loan: $45,000
  • Car loan: $5,500
  • Credit Card: $12,000

The minimum payments for these are the same as the last example. Again, George wants to pay them off quickly so he allots a total of $1,200 to put toward his debts each month. In this scenario, though, we also need the interest rates which are 6, 5, and 19 respectively.

In order for George to utilize the debt avalanche method, he will start paying minimum payments toward all debts. However, he will also add his extra $212 toward his credit card debt because of its high, 19% interest rate meaning his payments toward this debt will be $538. After that is paid off, his payments will snowball into his student loan (so that he will be paying the minimum payment of $450 + his extra debt payment of $538) which has an interest rate of 6% and finally to his car (so that he will be paying the minimum payment of $212 + $538 + 450) which has an interest rate of only 5%.

Again, similar to the debt snowball, this method saves you time and money. Let’s look at how much of each George saves with the debt avalanche method. If George uses this system, his debt will be paid off in 63 months (saving him 76 months) and he will only pay around $12,000 in interest (saving him over $11,000!).

Here are the basics of the Debt Avalanche Method

  • Continue paying minimum payments on all debts
  • Focus your attention on the debt with the highest interest rate
  • When one debt is paid off, add all of the payments from that debt to the next smallest debt and continue paying

The goal is to pay off your debts in order of interest to save you time and money in the long run.

Debt Snowball Method VS. Debt Avalanche Method- www.diyjahn.com

So, which is better?

Well, I have to be honest, they can come pretty close. As I’ve always said, personal finance is something that is just that: personal. Which means that you need to make personal decisions for yourself as to what will work best for you in your situation. And remember, I’m not an expert.

However, if you were to ask me which one I personally thought was better, I would go with the debt avalanche method, hands down. Why?

Well, the debt snowball method was created to help maintain motivation throughout debt repayment which, I’ll admit, can be difficult to do. Motivation is hard to keep hold of when you are living on next to nothing, so if you struggle with maintaining motivation, I encourage you to utilize this form of debt repayment.

From a strictly financial point, though, the debt avalanche method is clearly the winner. You see, no matter what, if you are paying on the highest interest first you will save money and time in your debt repayment.

Now, perhaps you only have a couple of loans and they all have low interest rates and are low amounts… In that scenario, it probably doesn’t matter which debt repayment plan you pick.

But if you are like the average American, you’re probably not that lucky. You most likely have over $30,000 in varying interest rates worth of debt growing each and every day. As Dave Ramsey says, “Debt is normal, be weird.”

Yes, it is weird to pay off your debt, but if you do it right you could be out of debt soon and experience the beauty of debt freedom. Okay, I’ve never experienced it myself, but I imagine that it’s the greatest sort of peace that there is.

Anyway, in my mind, debt freedom is the ultimate goal and I want to get there as soon as possible. Sure, I’m not always 100% gung-ho about spending all of my money on debt, but I know that if I work hard now, I can pay it off and live a better life in the future.

So, you ask which repayment method is better and I am certainly going to say the debt avalanche method over the debt snowball method. I mean, let’s look at George again. Sure the debt snowball method saved him thousands of dollars and only took him 64 months to pay off. But the debt avalanche method saved him even more money and only took him 63 months.

What’s the difference between the two? Well, for George it was a month and $1,200. Are you willing to give up $1,200 and a month of your life in order to have a happier experience paying off debt? Well, it’s really up to you guys. For me, that month could be a month of debt freedom. For some, the motivation to get started is enough to keep them going.

Like I said, it’s personal finance so the decision may vary for your personal situation.

Debt Snowball Method VS. Debt Avalanche

So, let’s look at what we found out today:

  • the Debt Snowball Method focuses on paying off the smallest debts first.
  • the Debt Avalanche Method focuses on paying off the highest interest debts first.
  • Overall: the debt snowball method helps you to stay motivated while the debt avalanche method saves you time and money.
  • Both are great, but only you can decide which method is right for your situation.

And now onto some information about our No Spend Challenge: It’s day 25 and we are looking forward to only SIX DAYS LEFT! Today’s quote is by an unknown source is:

Quote - Day 25 (1)

“The only man who sticks closer to you in adversity than a friend is a creditor.” – Unknown

Okay, I don’t need to explain that one, right? Let’s get out of debt and get those creditors off our backs!

Which method are you using to pay back your debt?

Leave your answers or a story in the comments below!

10 Replies to “Debt Snowball Method VS. the Debt Avalanche – NSC Series”

    1. Thank you!! I’m so glad that you found this so helpful. $200 can be a the difference between months and years of debt freedom! 🙂 Thank you for your comment, Iman

  1. Both methods are good. Why I recommend snowball: motivation + instability + clear view. Yep, snowball is closing fast the first credit and relax the budget – these periods are full of instability and it is important for me to know I have less depths. In plus, after one is closed, George still has 2 depths and he can go to the bank to consolidate/ renegotiate the credits /replace with just one with less taxes.

    1. That’s a great idea! If you are in need of some extra motivation, the snowball method is really the only way to go. And like you said, George could consider consolidation or refinancing if he liked. I haven’t heard a ton about the effects of that, but I”ll be looking at it. 🙂 Thank you for your comment!

  2. I forgot to tell you how much I admire you that you almost pay from your 20.000 depth. You are at 10% down from initial value!! As far you are closing 2-3 debts, your payments will go accelerated!! In plus so you have more calm and freedom to choose wise the directions.

    1. Thank you so much! I really appreciate this. We closed 4 debts already and are super excited to see the change in our Debt Repayment Update on Feb 1. I really appreciate your support as we go! Thank you again! 🙂

  3. I’ve found that there’s actually little financial difference in the avalanche v. snowball methods if you have relatively similar interest rates (within a few percentage points). Avalanche probably makes more sense if you have an outlier 18% credit card balance. But in other situations, the difference in methods is maybe a couple hundred dollars over 7-10 years. Not that I like giving away money, but if it’s psychologically more efficient to go snowball vs. avalanche, it seems worth the trade. You can graph out the differences and see the numerical amortization schedules using my home grown debt freedom calculator. It’s all a fairly academic distinction, because using either method you’re putting yourself on the fast track to debt freedom. Thanks for a great post discussing the differences!

    1. If your debts are fairly close (we’re talking 6.1 versus 6.6) it’s definitely up to opinion and there isn’t a ton of difference. As for those with a bigger gap (6 versus 9 percent) it’s worth it to stick with the avalanche if it won’t drive you mad! lol! If you really need the psychological motivation aspect of the snowball, that’s certainly the way to go! Like you said, it’s all about deciding which one is right for your situation, because in either case, the fact that you are getting out of debt faster is what truly matters! Thank you for your thoughtful comment, Mortimer!

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