Key takeaways
- Avalanche pays the highest rate first and always costs less interest. Snowball pays the smallest balance first and always finishes a debt sooner.
- On typical consumer balances the gap between them is usually small, often a few hundred dollars.
- Because the gap is small, the method you will actually stick with is usually the better method.
- Neither ordering matters as much as the amount you send above the minimums.
Two orderings, one pot of money
Both methods do the same thing. Pay every minimum, then throw everything spare at one target debt. When it clears, roll that entire payment into the next one. The only disagreement is which debt goes first.
Avalanche picks the highest interest rate. Snowball picks the smallest balance.
What the difference actually costs
Avalanche wins on arithmetic every time. Interest accrues fastest on the highest rate, so attacking it first removes the most expensive dollar of debt you own.
The honest part is the size of the win. On a typical mix of a store card, a credit card and a car loan, the difference is often in the low hundreds of dollars and a month or two of time. It is real. It is not usually life changing.
Why the losing method keeps winning
Clearing a debt entirely does something a spreadsheet cannot capture. It removes a payment, a due date and a small monthly reminder that you are behind. People who feel progress keep going.
If avalanche saves you $153 and you abandon it in month four, it saved you nothing. If snowball costs $153 and you finish, it was the cheaper plan. That is not a maths failure, it is the maths correctly accounting for the fact that plans get abandoned.
What actually moves the needle
Both methods are downstream of one number. How much you send above the minimums.
Adding fifty dollars a month to the payment changes the payoff date far more than reordering the queue does. Pick whichever ordering you will keep, then spend your effort on the extra payment rather than on optimising the sequence.
Sources
- Interest totals above are computed from a worked example of three debts paid with an identical monthly amount, differing only in payoff order.
- Federal Reserve, commercial bank interest rates on credit card plans, for the historical range of card rates since 1994.
Open Debt in Budget. Model your real debts with both strategies, custom ordering, and the full month-by-month schedule.
Open in Capital Allocation →