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January 26, 2018 · 1 Comment

Debt Snowball vs Debt Avalanche

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Budget· Budget Tips· Debt Free· Debt Free Tips

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When it comes to paying off debt, the first question most people what answered is which method is better at paying off their debts.  Is it debt snowball?  Or is it debt avalanche?  Which method will be better for you during your debt free journey?  The answer may surprise you!

Debt Snowball vs Debt Avalanche

Debt Snowball

The term debt snowball  is used to describe when you are paying off your debts from the smallest debt to the largest debt, all the while “snowballing” your minimum monthly payments into a larger minimum monthly payment.

So, for an off the cuff, made up example:

Debt Snowball vs Debt Avalanche

For the debt snowball, you would pay Debt B first, since it has the lowest debt balance.

The debt snowball method means you pay the minimum payments towards all the other debts, the $25 minimum to Debt B, and any extra money you can to Debt B, until it is paid off.

Once Debt B is paid off, you take the $25 minimum you were paying on Debt B, and add it to the minimum payment on the next smallest debt.  In this scenario, that is a $35 payment on Debt E.  Debt E now has a $60 minimum monthly payment, along with any extra you can put towards debt throughout the month, until Debt E is paid off.

You keep following suit, paying off Debt D, Debt C, and finally Debt A, all the while combining your minimum payments until all the debts are paid off.

 

 

Debt Avalanche

Debt Avalanche is when you tackle your debt from the highest interest rate to the lowest interest rate.  The reasoning behind this is that you’re paying less on interest in the long run.  While this method won’t come with the easy wins associated with the debt snowball method, depending on your personal debt, it’s usually the fastest way to get out of debt.

So, using the same, totally made up example from above:

Debt Snowball vs Debt Avalanche

Under debt avalance method, you would start with Debt E since it has the highest interest rate.  While debt snowball would give you a fast win to pay off Debt B before moving onto Debt E, the entire time you’re paying off Debt B, Debt E is earning interest.  In some cases, depending on your debt scenario, the interest earned is more than your  is earning more than your minimum payment each month.

Under this scenario, you would pay the $35 minimum payment on Debt E, and anything else you can throughout the month, until Debt E is paid off.  Then you take the minimum payment on Debt E, add it to the Debt A minimum payment, making Debt A’s new payment $135 until you pay off Debt A.

In following suit of largest to smallest interest rate, after Debt A is paid off, you would then focus on Debt C, Debt D and finally Debt B.

You can grab your copy of the budget workbook I use to help us get laser-focused on our budget and pay off debt here!

Which Method Is The Right Method?

When it comes to the debt snowball vs debt avalanche and which is better, in my opinion this is where we start splitting hairs.  Under each scenario, you still have a $325 minimum monthly payment by the time you get to the last debt.

Which method is the correct method for paying off your debt is determined by your end goal.

If you want to stay motivated along the way, tacking the smaller wins at a time, then the debt snowball method is for you.

If you want to get out of debt paying the least amount of interest, then the debt avalanche method is for you.

To help figure out which method of paying off debt is right for you, I highly recommend checking out this Debt Reduction Calculator by Vertex42.  It comes in Excel format, but you can also download it to your Google Drive if you don’t have Excel.  On the sheet, you can input your debt information, and then play around with which method you want to use to pay off the debt.

In the totally made up example I used above, the Vertex42 calculator says that both methods will take approximately 20 months to pay off all the debt, {paying only minimum payments and nothing else}, and that the avalanche method will save you $2 in interest.  For us personally, we’ve taken a combination approach.  Some of our debts have been done out of order for the snowball method, but are in order with the debt avalanche method.

I’m of the belief that there is no absolutely correct method to paying off debt, just as long as you change your financial habits and pay off debt as fast as you can given your unique set of circumstances.  To me, it’s always the end game that matters… changing financial habits, saving for what’s to come, and getting debt paid off and out of our lives for good.

 

What method are you using on your debt free journey?  Debt snowball, debt avalanche, or a combination of the two?

 

Looking for more posts on budgeting?  Check these out:

  • Zero Based (Paycheck) Budgeting
  • No Spend Month
  • 52 Week Savings Tracker

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  1. Charity says

    December 31, 2020 at 10:22 am

    I love debt snowball! The debt snowball method is the only one that has worked for us in paying off a lot of credit card debt.
    Charity recently posted…Get Paid To Type (30+ Legitimate Sites That Will Increase Your Cash)My Profile

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Only you can determine what your financial goals a Only you can determine what your financial goals are. If that means you're adding money to your savings account, or contributing to your retirement, while you are paying off debt, then so be it!⁠
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The trick to meal planning is to make it predictab The trick to meal planning is to make it predictable. But predictable doesn't mean the same thing week to week. You could have a chicken meal, a soup meal, a pasta meal, a leftovers meal, a family favorite meal, and so on.⁠
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March Debt Paid numbers are in!⁠ .⁠ House: $51 March Debt Paid numbers are in!⁠
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Extra Payment: There isn’t one this month since we were $25 away from zeroing out the budget for our February 15th monthly paycheck. That $25, and monies left from our January 15th paycheck, covered our OOP costs for Hubs’ filling. We also have some savings goals coming up that need to be met, making our debt payments a little lower for the time begin.⁠
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The battle for who can charge what tonight is abou The battle for who can charge what tonight is about to begin. 😬⁠
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My kids run off with my charger, plug it into one outlet 5 feet from where they found it like that particular outlet is the only one in this house, and then proceed to fight over who can charge their device first at night.⁠
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A needs his wisdom teeth taken out. I've talked a A needs his wisdom teeth taken out. I've talked a bit in our February Budget Check-In about how much of this I think we'll owe, and you can check that out on my YouTube channel if you're interested, but I wanted to say here...⁠
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It was a lot of money for us at the time. Our kids were 6, 2, and 3 months old. I don't think we even had $500 in savings, and I just left a part-time teaching job because it wasn't paying the part-time daycare bill, so paying our portion in full was just a dream I didn't think was achievable.⁠
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Nearly 10 years later, we are still paying off our debts. Student loans suck. But I see this bill as a reminder of how far we have come. Seeing a bill like this doesn't stress me out like it used to, and I know we can easily create a plan that can get it done and out of the way.⁠
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It's almost payday! Here's how our variable budget It's almost payday! Here's how our variable budgeting categories are working out for the pay month.⁠
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Food is looking good this far into our paycheck, probably because miscellaneous - which includes eating out - took a hit with unexpected purchases. Pet is low for this time of the month, and Household is spot on.⁠
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Fuel looks like it'll be lower than last month (yay for weeks of snow days & delayed school starts), and Therapy had one more appointment than initially planned.⁠
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Automating your finances makes saving money and bu Automating your finances makes saving money and budgeting more convenient, and therefore easier on you. Out of sight, out of mind, right?⁠
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Oh my word... our miscellaneous category has gone Oh my word... our miscellaneous category has gone a smidgen overboard this month!⁠
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I foresee a goal for March's paycheck to at out less than twice. That's where this category went awry. $99.16 of it went to eating out. 😑 Some of it was avoidable, but not all of it. Having to drive to multiple appointments in one day during snow squalls and rearranging our whole day was one of those unavoidable instances.⁠
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