Debt
Paying off debt: snowball or avalanche?
Two well-known payoff orders, the maths behind each, and an honest take on when the 'wrong' one is right.
If you carry several debts, you face a sequencing question: which do you attack first with your spare money while paying minimums on the rest? Two methods dominate the conversation. Both are sound; they optimise for different things.
The avalanche: cheapest by the numbers
List your debts by interest rate, highest first. Pay every minimum, then throw all extra cash at the highest-rate debt until it is gone, then roll that payment into the next-highest, and so on. Because you are always killing your most expensive interest first, the avalanche minimises the total interest you pay and usually clears everything fastest. If you are coldly optimising dollars, this wins.
The snowball: fastest visible wins
List your debts by balance, smallest first, and attack the smallest regardless of its rate. You clear individual debts quickly, which produces a steady drumbeat of 'paid off' moments. That momentum is not trivial — debt payoff is a months-or-years project, and motivation is the resource that most often runs out. Studies of real behaviour suggest people are more likely to stay the course with the snowball, even though it can cost a little more in interest.
How to actually choose
If the interest-rate gap between your debts is large — say a 24% card next to a 6% loan — the avalanche's savings are real and worth capturing. If your balances and rates are similar, the difference is small and you should pick whichever keeps you going. A reasonable hybrid: knock out one tiny balance first for the morale, then switch to avalanche order for the rest. Whatever you choose, the non-negotiable is paying every minimum on time so nothing goes delinquent.
Common questions
- Does the debt snowball cost more than the avalanche?
- Usually a little, because you may pay down a low-rate debt before a higher-rate one. The gap is often modest when balances and rates are close, and larger when rates differ a lot. Many people accept a small extra cost in exchange for the motivation of clearing whole debts quickly.
- Should I invest while paying off debt?
- It depends on the interest rate. Paying off high-interest debt — credit cards in the high teens or twenties — is a guaranteed return that usually beats expected investment returns. For low-rate debt, some people invest alongside paying it down, especially to capture an employer retirement match. Keep a basic emergency buffer either way.