Two Methods, One Clear Winner
Debt snowball: pay smallest balance first. Good for psychological wins. Debt avalanche: pay highest interest rate first. Saves the most money.
Both work. The avalanche wins on numbers — often by thousands of dollars.
What Is the Debt Avalanche
- List all debts by interest rate, highest to lowest
- Make minimum payments on all debts every month
- Put every extra dollar toward the highest interest rate debt
- When paid off, roll that payment to the next highest rate
- Repeat until all debts are gone
Why It Saves More Money
High interest rate debts cost more every month they exist. Eliminating them first stops that cost fastest.
Example: Credit card at 22%, personal loan at 14%, car loan at 7%.
Avalanche targets the credit card first. It accumulates interest at more than three times the rate of the car loan. Studies show the avalanche saves hundreds to thousands over the snowball.
How to Implement It
List all debts with balance, rate, and minimum payment sorted by rate.
Find even $50 to $100 extra per month to concentrate on the top debt.
Pay minimums on everything. Direct every extra dollar to position one. When it falls, roll its payment into position two.
The Rule Above All Others
Stop adding new debt while paying down existing debt.
Every dollar of new high-interest debt reverses the progress of multiple dollars already paid. The avalanche only works if the balance is going down.