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Should I Use the Debt Snowball or Debt Avalanche Method?

Both methods pay down debt by targeting one balance while paying minimums on the rest. The debt avalanche method usually costs less because it targets the highest interest rate first. The debt snowball method targets the lowest balance first, which can feel easier to stick with. Neither works once interest outpaces your payments, and that is when counseling helps.

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How the Debt Snowball Method Works#

The debt snowball method pays off credit cards or loans by putting more than the minimum payment toward the debt with the lowest balance first, while paying only the minimum on the rest. Once that balance is gone, the same extra amount moves to the next lowest balance, and this repeats until every debt is paid off.

How the Debt Avalanche Method Works#

The debt avalanche method focuses extra payments on the debt with the highest interest rate first, while paying the minimum on the rest. As each high-rate balance is cleared, the extra payment shifts to the next highest interest rate.

The Math Behind the Difference#

The debt snowball method will take longer and cost more in the long run because interest keeps accruing on larger debts while smaller ones are paid off first. The debt avalanche method can save money because less interest accrues on larger debts, which means less compounding interest. Depending on how much debt a person has to pay off, using the debt avalanche method could save hundreds or even thousands of dollars by clearing high-interest debts as soon as possible. Even so, paying down part of a balance, by either method, still reduces the amount of debt that interest is charged on, so progress is progress.

How the Debt Snowball and Debt Avalanche Methods Differ
MethodOrder of PayoffEffect on Cost
Debt SnowballLowest balance first, minimum on the restTakes longer and costs more overall as interest keeps accruing on larger debts
Debt AvalancheHighest interest rate first, minimum on the restCan save money, sometimes hundreds or thousands of dollars, since less interest accrues on larger debts

How to Decide What to Do With Your Tax Return#

Year in Review

How do your finances look? If you have debts to pay, credit card balances that have been carrying over for months, or you’re trying to save for a down payment on a new home, it may not be the best time to spend your tax refund on something that’s not a priority. If you don’t have to worry about paying off a debt, there’s nothing wrong with spoiling yourself a little bit.

Prioritize Finances

The most pressing item on your financial plate right now is where your priorities should be. If there are leftover funds from your tax refund after you tend to your first priority, move to the next. Priorities should be ordered according to which is most important to your family’s well-being. Shelter, food and medical expenses should never be at the bottom of the list. Personal debts owed to family members or friends and entertainment expenses should never be at the top of the list, but should certainly be addressed.

What Are Some Healthy Financial Choices?

If you’re expecting a few hundred dollars, this money may best be spent on something that will help prevent you from spending even more money in the future. Small home or auto repairs now could help prevent larger problems that may end up costing you more than your tax refund would cover. If there are no repairs you can make, put the money toward your most pressing financial issue, whether that means paying down a debt or building an emergency fund.

Allocate Funds

You don’t have to spend all of your tax refund in one place. Part of your tax refund could pay off another installment of a credit card bill, while the rest goes into your emergency fund. How you allocate your funds depends entirely on your personal financial situation. Before you decide, take into account your interest rates, how much you owe, whether another late payment will cause you to go into default, and anything else that may affect your finances negatively.

Paying Off Your Holiday Debt#

Receive and Return

If you’ve received a gift that you’re not going to get much use out of, or if it simply isn’t your style, return it to the store for cash or store credit. If you get cash back for your returned gift, put that much towards paying your debt down.

Christmas Debt Countdown

Paying off your debts can seem like it will take forever and can be discouraging. To stay on track, keep a running countdown of how much debt you have to pay back and reward yourself after hitting a milestone. For example, if you have $2,000 to pay off from holiday shopping, allow yourself a small reward after every $500 you pay down on your debt. By keeping track of your debt this way, you’ll be able to see your progress and be less likely to get discouraged.

When Neither Method Is Enough#

Both methods still rely on paying only the minimum on every debt that is not the current target. Making only the minimum monthly payment on a credit card takes the longest possible time to pay it off and results in paying much more in interest, often more than the amount originally borrowed. When interest rates are high enough, that minimum can keep a balance from shrinking much at all, no matter which method you use. That is the point where sitting down with a counselor to look at the full picture is worth it.

What Cambridge Credit Counseling Offers#

Cambridge Credit Counseling is a 501(c)(3) nonprofit agency that offers credit counseling, debt management plans, housing counseling, student loan counseling, reverse mortgage counseling, and bankruptcy counseling. When someone enrolls in a Cambridge Credit Counseling debt management plan, a counselor first reviews the person’s financial situation and the debts to be included, then provides an estimated monthly payment and an estimated time to become debt free. Consumers on a plan make one monthly payment to Cambridge, and Cambridge sends payments out to each creditor included on the plan.

What to Do Next#

There is never any obligation to enroll in a debt management plan after a credit counseling session with Cambridge Credit Counseling. If the numbers on a snowball or avalanche plan are not adding up, a Cambridge Credit Counseling counselor can review your full financial situation and walk through what a debt management plan payment and timeline could look like for you.

Common questions

What is the debt snowball method?

The debt snowball method pays off credit cards or loans by paying more than the minimum on the lowest balance first, while paying just the minimum on the rest, then repeating with the next lowest balance until you are debt free.

What is the debt avalanche method?

The debt avalanche method focuses extra payments on the debt with the highest interest rate first, while paying the minimum on the rest, then moves to the next highest rate once that debt is paid off.

Which method saves more money, snowball or avalanche?

The debt avalanche method can save money because less interest accrues on larger debts, and depending on total debt this could mean saving hundreds or even thousands of dollars. The debt snowball method typically costs more overall because interest keeps building on larger debts while smaller ones are paid off first.

Does making a partial payment on a credit card still help?

Yes. Paying down part of a credit card balance reduces the amount of debt that interest is charged on, so even a partial payment lowers future interest costs.

What if my minimum payments are not enough to make progress?

Making only the minimum monthly payment takes the longest possible time to pay off a balance and results in paying much more in interest, sometimes more than the amount originally borrowed. If this sounds familiar, a Cambridge Credit Counseling counselor can review your situation and explain what a debt management plan payment and timeline could look like.

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