Debt snowball vs. avalanche: compare payoff methods

How it works

Under comparable assumptions, putting extra repayment toward the highest APR generally reduces interest cost. The snowball can give an earlier account payoff that motivates continued payments. A fair comparison holds the total monthly budget constant and includes promotional rate changes, fees, and any overdue obligations that need immediate attention.

A worked example

Suppose Card A owes $500 at 12% APR and Card B owes $4,000 at 25% APR. After minimum payments, you have $200 extra. Snowball sends it to A; avalanche sends it to B. Roughly, $200 reduces one year’s simple interest by $24 at 12% or $50 at 25%, if it otherwise remained outstanding for that year. Actual amortization changes the result.

What to compare

Write down the amount you can reliably pay, then model the order with current statements. Roll a paid-off debt’s former payment into the next target rather than allowing it to disappear into other spending. Reassess if a promotional rate expires or your income changes. Preserving a modest cash buffer can reduce the chance of borrowing again for an unexpected bill.

A common mistake to avoid

Avoid switching strategies so often that neither gets sustained extra payments. A debt secured by an essential asset, a delinquency, or a legal obligation may require different priority than a simple APR ranking. Debt payoff is a cash-flow plan as well as a mathematical exercise; required obligations must remain manageable.

Can I combine the two methods?

Yes. Some people clear one small balance and then target the highest APR. Compare the additional interest with the practical value of that early milestone.

Sources and further reading

• CFPB: How to reduce your debt
• CFPB: How credit card interest is calculated

Connect this to inflation

Inflation changes the spending power of money over time. Read the related inflation explainer, or measure changes in buying power using your own assumptions.