Debt Snowball or Debt Avalanche?
5 Easy Ways to Start a Debt Free Journey
September 8, 2021
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November 29, 2021
If you are thinking about starting a debt free journey, it is a good idea to choose a debt payoff plan to help expedite your journey to become debt free.
The two most popular are the debt snowball method and the debt avalanche method.
Personally, I don’t think one is better than the other. It really will come down to one’s personal preference, the debt you owe, and your budget.
Regardless, let’s explore what the difference is between the two, so you can make a more informed decision about which debt payoff plan is best for you.
*I wish to be transparent with my viewers/readers. This post contains affiliate links. If you click on the links and make a purchase I will be paid a small commission.
Debt Snowball or Debt Avalanche?
Debt Snowball
I feel the debt snowball method is the easiest. All you do is take your debts and list them from your lowest balance to your highest balance.
Discover Card: $300
Macy’ card: $750
Car note: $13,000
Naviant student loan: $16,000
AES private student loan: $23,000
In the example above, the Discover Card would be the lowest debt and thus, that debt you would tackle first where you pay the minimum payment, plus additional payments, while also making the minimum payment on all your other debts.
Once the smallest debt is paid off, whatever was your minimum payment from your smallest debt, take that and roll it into the next debt to pay off.
So, say the minimum monthly payment for the Discover Card is $15 per month and say you are able to allocate an extra $50 per month to that debt. That’s $65 per month that you would make towards that card until it is paid off.
Moving onto the next smallest debt: the Macy’s card.
Say the monthly minimum on your Macy’s card is $25 per month. You would pay the minimum, but you would also add $65 from what you were paying on your Discover Card, for a total monthly payment of $90 per month.
You repeat this snowball method until all of your debts are paid off.
Debt Avalanche
With the debt avalanche, you list your debts from the highest interest rate to the lowest interest rate, regardless of what the balance is.
Car note: ($13,000) 10% interest
Macy’ card: ($750) 8% interest
AES private student loan: ($23,000) 7.5% interest
Discover Card: ($300) 7% interest
Naviant student loan: ($16,000) 6.5%
With the debt avalanche, you will tackle the debt with the highest interest rate first by making your monthly minimum payment, plus additional payments, while also making the minimum monthly payment on all your other debts.
If you car note is $150 per month, and you are able to pay an extra $150 each month, that’s $300 that you will make towards your car payment until it’s paid off.
Once that’s paid off, take that same $300 and add it to the monthly minimum of your next debt with the highest interest rate. So, if the Macy’s card is $25 per month, now you will be making payments of $325 until it’s paid off.
Repeat this avalanche method until all your debts are paid.
Which Debt Payoff Plan Is Better?
That depends on the individual.
As mentioned, choosing a debt payoff plan will come down to your personal preference, the debt you owe, and your budget.
For instance, say someone on a debt free journey is a low income earner. The debt snowball method using thee example debts above would be easier because $300 on the Discover card would be quicker to eliminate than a $13,000 car note.
Either way, simply use the one that works best for you. I am using the debt snowball method because I want to experiences quick wins!
Cheers to your future wealth and be sure to watch my video below on my debt free journey.
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Thanks!
-Tanisa
