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Debt Snowball Vs Debt Avalanche: Is One Right For You

The Debt snowball and The Debt avalanche

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When my wife and I began our debt-free journey we didn’t really know much about the different debt payoff processes.  We knew we had a lot of debt and wanted to get rid of it.  It was as simple as that.

Paying down debt appears to be all the rage these days, and Dave Ramsey marketed the shit out of the debt snowball but, that’s not the only way…  The debt snowball has a lesser known brother… the avalanche.

For starters, I dig the fact that the personal finance community seems to respect either school of thought (avalanche vs snowball).

Both options will lead you to the prize, but is there a right decision?  Did we make the right move going the snowball route?

Did we have enough information before we decided to tackle that financial beast?  I’m not so sure we did…

So… Let’s explore these bad boys together.

numbersThe Debt Snowball

The debt snowball, in my experience, is the most popular method on social media.  So, obviously… it’s the best, right?

The best thing about the debt snowball is that it’s really easy to understand.  You look at all of your debt and put it in order of lowest balance to highest.

Your quest for debt freedom begins with the smallest balance.  You pay that bitch off and then roll that payment into the next debt.

For example.  If you have 3 debt that look like this:

  • $1,000 | 0% Interest | $10 minimum payment
  • $2,000 | 9% Interest | $20 minimum payment
  • $3,000 | 22 % Interest | $30 minimum payment

You’re going to start with the $1,000 debt.  Oh no, what about that 22% interest rate??  The interest rate is complete irrelevant when utilizing the debt snowball.

As Dave Ramsey says “if math mattered, you wouldn’t be in debt”.  Personally, I think that advice is self-serving but… hey.  Who am I?

So, back on topic… You’re going to start with the $1,000 debt and scrounge up as much extra cash as you can to attack it.

Let’s say you find an additional $200 to throw at debt.  Now, you’ll be paying $210 toward that $1,000 debt and you’ll keep paying only the minimum payments on all other debts.

Once it’s paid off, you’ll “snowball” that $210 into the next debt.  So, you’re now paying $230 toward debt #2.

Once that one is paid off, you’ll roll that $230 into debt #3.  At this time you’ll be paying $260 toward that last debt!

It’s literally THAT easy.  Start with the smallest debt, ignore your interest rates and roll each payment into the next as you work down the list. Bingo Bango Bongo.

Debt Snowball Pros

My wife and I paid off $109,000 of consumer debt by utilizing the debt snowball.  So, I’m probably a little biased.

With that being said, there are some obvious and not so obvious pros and cons to the debt snowball method.

For starters, it’s super easy to use and understand.  If you can add up your debt, and put it in order of least to greatest… you’re all set.

You don’t need to know about or even understand interest rates.  APR?  WTF?  They are totally irrelevant with the debt snowball. (GASP)

The snowball is fueled by emotion.  By starting with your smallest debt, you get a quick taste of satisfaction when you pay it off.  Emotional victories will be pivotal during this tedious process.

The debt snowball also allows a newbies to ease their way into this whole finance game.  If you’re new to creating a budget and paying off debt, you’re going to screw up… often.

It’s totally cool though.  We screwed up a ton and it all still worked out.

Those screw ups early in the game won’t slow you down too much because you’re attacking that small debt first.  Maybe it takes you 3 months to pay it off instead of 1.  Ok… I can live with that.  You’ll still get a taste of victory and also iron out those initially budgeting kinks early on.

What about the cons?

Well… it could end up costing your some money… maybe even a lot of money.  Depending on how much debt you have and what those pesky interest rates are, this option might not be the right fit for you.

I can hear the Dave Ramsey community screaming now.  I know, I know… I’m not a purest (GASP).

If you have a high debt balance with a high interest rate, you really should consider another option (the avalanche).  I know Dave says “Math doesn’t matter”, but in the real world, it does.  That advice helps him sell books.  It doesn’t save you money.

Despite how much I loved the debt snowball, making minimum payments on a high balance/high interest rate is not an intelligent financial decision.

Where can you learn more?

debt snowball learn

What? This singular blog post isn’t enough for you to base your financial decisions off of?  Fine… let’s check the inter-webs for more!

Obviously the best resource is the man himself… Dave Ramsey.

Dave has books, a webpage, a podcast, live events and an in-person training based around “his” teachings called Financial Peace University (FPU). I really can’t say much about FPU because we never attended one.

Dave’s book “The Total Money Makeover” walks your through the snowball in great detail.  I read it cover to cover in a couple days.  It’s a great read and super motivational.  Definitely worth your time.

I also like Dave’s podcast. He takes live questions from viewers every week, Monday thru Friday.  He doesn’t pull any punches with his responses, so if you’re easily offended or dislike opinionated folks… steer clear.

If you’re looking for some financial advice and motivation, listen in.  You can find his podcast here.

While exploring his page, reading his books, or even listening to his podcast, remember this is how he makes a living.  His advice has helped millions of people but, he’s a businessman.  He’s a bit biased.

Nerdwallet has a cool little post about the snowball and also offer a free calculator to use.

Finally, what would a good resource list be without a Wikipedia link!  Actually, the wiki page is pretty good at explaining the debt snowball method.  Worth the few minutes it’ll take to review.

addingAVALANCHE!!

If the debt snowball is Eddie Murphy, the avalanche is his brother Charlie.  A pretty entertaining dude, but just not as well known.

The debt avalanche appears to be a financially intelligent way to attack debt. It’s just not marketed as well as its brother the snowball.

The debt avalanche is a payment process based around interest rates, not balances.  Riley over at Young & Invested referred to it as the “economic approach” and I’ve also heard it called “debt stacking”.

If you’re new to personal finance this process may seem complicated, but it’s really not.  All you need to do it is list out all of your debts and their interest rates.  Put them in order from highest interest rate to lowest.

The debt avalanche will have you begin with the highest interest rate first and work down from there.  You’ll still need to work hard to budget, find extra cash to throw at the debt, and roll the payments together as you progress through the list.

For example:

  • $3,000 | 22% Interest | $30 minimum payment
  • $2,000 | 9% Interest | $20 minimum payment
  • $1,000 | 0 % Interest | $10 minimum payment

You’re going to begin with the $3,000 balance this time because the interest rate is the highest.  Once that bad boy is gone, you’ll move right down the list.  While you’re paying extra on the targeted debt, you’ll continue to pay the minimum payment on all other debts.

Debt Avalanche Pros

Money baby, money.  The debt avalanche can save you a lot of money if you have high interest debt.  That sneaky little bastard known as interest is just sitting back there… quietly increasing your balance and delaying your ability to cross the financial finish line.

The avalanche may also get you out of debt faster than the snowball.  By tackling your high interest debt first, you’re decreasing the ability of that interest to drive your balances up.

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Remember, the snowball is starting with the lowest balance and working up.  If one of those high balance debts also carries a high interest rate, that balance is just increasing as you work toward it.

The avalanche eliminates that and ultimately, eliminates time.  Win, win.

Finally, I think an overlooked pro to the avalanche is the financial intelligence you gain.  Learning about interest rates and how they impact your life is crazy important.

The debt-free journey is just the beginning of your financial story, and by utilizing the avalanche you’re going to have to jump right in and learn.

That knowledge will prove extremely important as you get to the wealth building stage of your life.

What about the cons?

Emotions baby, emotions… They are some powerful things and for as much as the avalanche offers in terms of common sense, it lacks in initial emotional motivation.

The avalanche doesn’t guarantee a win or two early.  If your highest interest rate carries a balance of $100,000.  Guess where you’re starting?

By potentially starting with such a high balance you’re going to have to rely on mental toughness or discipline to keep going and not give up.  It may take years to get that first mental “win”.

Another potential con is the perceived difficulty.  Anyone just starting on their debt-free journey may also have a limited financial knowledge base.

The thought of having to understand interest rates, even on a small scale could seem over-whelming and prevent them from even starting.

Where can you learn more?

Like I said earlier, the avalanche is a solid way to attack debt, it’s just NOT marketed like the snowball.  I guess Ol’ Dave had the idea.  I mean, it doesn’t even have its own Wiki page… the horror!

With that being said, there are a few quality sites available to help you learn more.

Nerdwallet and Investopedia both did a nice little write up about the avalanche.  Nerdwallet offers another free calculator to help you on your way as well.

So, what should you do?

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Honestly, I don’t have an answer for you.  Despite what every financial guru will tell you, no one knows what’s perfect for you.

Paying off debt is brutal.  It takes years of patience and persistence to get out of the financial hole you may find yourself in.

If I was starting over again and beginning my debt-free journey with the knowledge I have now… I’d probably try a hybrid of the two.  I’d try to tackle a small debt or two and then pound away at my highest interest rate debt.

I know how important the emotional wins were to sustaining my motivation throughout the process. It kept us going… Without that… Man, I don’t know if we would have lasted down the home stretch.

Look at your debt.  Do you have crazy high interest rates or not?

Consider your own emotional brain.  Are you mentally tough or not?  Be honest with yourself, can you go years without an emotional “win”?  Are you able to fall back on discipline and carry on, or do you need to feel like you’re winning more often?

Those financial gurus can certainly offer some great advice, but at the end of the day, you’re the author of your financial story.  Seriously consider what you need to do to finish that book… because I’m here to tell you, it’s not easy.

What debt payment method do you use?  Leave a comment and let us know, also… don’t forget to subscribe and pin!

1 Comment

  1. I appreciate the shout out and I still stand by the avalanche approach. It’s perhaps harder to understand or to see progress as quickly but math DOES matter in the real world. It’s important to look at your various debts wholistically in terms of total amount outstanding, NOT total number of loans.

    Dave Ramsey’s over-simplified approach is costing people lots of money. Granted, he’s helping folks to recognize their debt binging and how to get out of it. So I guess the means of reaching the desired outcome (debt free) matter less but it doesn’t need to be as costly. Why pay more than you need?

    Looking at your example above, paying off your 0% interest loan before your 22% credit card debt is insane. People need to be aware of the downfalls to following the snowball method.

    Thank you for writing more about this. I really enjoy reading your insights on battling (and overcoming) debt.

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