Snowball vs. Avalanche Method of Repayment

We’ve all had those moments where we sit down and take stock of our debts and feel overwhelmed. Some of us more often than others. I don’t really think anyone is all that immune to feeling powerless in the face of massive debt, and if you let it, it can really get you down. It’s far, far better to take a proactive approach to debt. Remember that people have overcome debt far greater than yours, and they’ve done it during eras that lacked the resources we have today. You have access to countless financial experts all over the world. There is certainly no shortage of knowledge on the internet when it comes to debt, and much of that knowledge references the two common ways of paying it down: the snowball method or avalanche method.

So, what are these two methods of debt repayment and does one have advantages over the other?

Snowball method

Well, first, the snowball method. This method sees you paying down your smallest debts first, while making minimum payments on all of your other debts. Once the smallest debt is paid off, you roll the monthly payment you were making on that debt, over to your next smallest debt, and so on and so forth, until finally, all the money you spreading out over several debts, have become one payment on your last and largest debt.

For instance, if you have the following minimum payments due each month:

a. $35
b. $62
c. $80
d. $120

For debts ‘b’, ‘c’ & ‘d’, you’ll pay the minimum payment while working aggressively to pay down ‘a’. If you’re paying $150 on ‘a’ each month, and meeting the minimum payment of each of the other debts, once you’ve paid off ‘a’, you’ll be putting down $212 on ‘b’ while still making minimum payments on ‘c’ and ‘d’. By the time you’ve paid off all except your last debt, it should be single payment of $412 each month, on ‘d’ thereby paying it down much faster.

The benefits of this method, is that it allows you to feel the success of paying off your first debt much quicker than the avalanche method. This will give you a motivational boost, a real feeling of accomplishment. Seeing your hard work pay off quickly really helps to keep you on the right track.

Avalanche method

The avalanche method of paying down your debt sounds like it might be the opposite to the snowball method, but it’s not. The avalanche method, rather, aims to pay off the debts with the highest interest first, rather than the smallest balances. Just like the snowball method, once you pay off the debt with the highest interest, you can take the payments you were paying it off with, and add it to your next debt and so on.

This method is clearly the cheaper route and most financial experts agree, it’s also the quickest. Debts with higher interests are going to cost you more, the longer you hold a balance on them, and that can sometimes make you feel like you’re barely making a dent. Getting your highest interest debts out of the way first, is no doubt going to save you a lot.

Snowball method or avalanche method

So, which method is best for you? Well, that’s up to you. If you’re the type who needs to see results as soon as possible to avoid getting discouraged and losing sight of the end goal, then the snowball method might be your best choice. If you’re the sort of person who can stay on track as long as you have a target to reach, and you want to get it all out of the way as fast as you can, then the avalanche method might be right for you.

What do you think? Are you a snowball or an avalanche sort of person? Let us know in the comments!