Debt Reduction - Debt Snowball vs. Debt Avalanche

Is Debt Snowball Better Than Debt Avalanche?

There are a few different debt reduction techniques that are very popular amongst which are the so called "debt snowball" and "debt avalanche" debt reduction methods.

There’s a lot of debate over whether debt snowballing is better than other techniques such as the debt avalanche debt reduction method (paying the highest interest rate loan first).

Debt snowball is the debt reduction technique of paying your loans by starting from the smallest debt and working your way up to the biggest one, like rolling a snowball. When the first loan is paid in full you allocate the payment from this first loan to the next highest one. As each loan gets paid, the pay down amount getting applied to the next largest one gets larger each time – hence the term ‘debt snowball’.

(Read more about debt snowballing here)

Debt avalanche is the debt reduction technique of paying off the loan with highest interest and then moving down to the debt with the next higher interest and so on.

Which technique would be better to choose If you are really serious about getting gout of debt?

The mathematics favor the debt avalanche, the psychology favors debt snowballing.

Should you have a $2,000 balance at 10% interest, and a $6,000 balance at 18% interest, it would make no financial sense to focus on paying off the lower amount first. So when there are large differences in the interest rate on each account then the snowball method would not make the most financial sense.

People with more financial discipline can make quicker headway by paying off the loans with the higher interest rates first. However, attacking the smallest loan first, whilst still maintaining minimum payments on everything else is a great strategy so long as you follow through on the plan and step up to the next smallest loan each time and knock those loans on the head for good!

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To the readers: Which debt reduction technique would suit you better: debt snowball or debt avalanche?