Snowball Method vs. Avalanche Method

If you’re struggling to pay off debt, you’re not alone. According to NerdWallet statistics, the average American carries about $6,829 in credit card debt alone. That doesn’t even take into account car loans, mortgage loans, or student loans.

Many people struggle with intimidatingly high balances because of lack of knowledge about how to use credit cards responsibly or past emergencies. If you have multiple cards that are topped off It’s hard to focus on a single account to pay off first as the others require minimum payments too. All this stress adds up and credit card debt rolls month over month.

Luckily, there are several techniques that experts in personal finance have been using for decades to pay off debt. They leverage logic and psychology to ensure efficiency and motivation. So what are the best ways to pay off credit card debt, and how do they work?

The Snowball Method

One of the best ways to pay off credit card debt is the Snowball Method. It capitalizes on the emotional aspect of human decisions. By prioritizing your payments on the account with the smallest balance over the one with the largest balance, you can achieve small victories that make the process more rewarding.

How it works: To utilize the Snowball Method, organize your account balances from the lowest to highest balance. Place the largest payment that your budget allows on the account with the lowest balance, while at the same time paying the monthly minimum balance on all other accounts.

Keep doing this until you pay off your first account. Once the account with the lowest balance is paid off, roll that same payment amount over to the account with the next highest balance and add it to the minimum payment amount you’ve already been making on it. 

You will gradually be able to make higher payments on subsequent accounts as you free up the balance of the previous account. Imagine a snowball rolling down a hill and accumulating more snow as it goes. In this case, the snow is your payment amount. 

Pros: Snowballing your account payments by paying off the lowest balances first produces a positive mental effect. You will achieve small victories early on, which will motivate you to keep paying off debt. The account with the highest balance is the final battle.

This method is also a quick way to increase your credit score. Credit bureaus will see that accounts are being paid off quickly.

Cons: Higher balanced accounts with high-interest rates will continue to accrue fees while you work on paying off the lower balanced accounts. Thus, more money may be lost in the long run. If you are more concerned with saving money while also paying off debt, then the Avalanche Method may be a better option.

Avalanche Method

Avalanche method is another best way to pay off credit card debt. Focusing more on interest rates, it is the logical way to pay off account debt. Instead of prioritizing based on the account balance, the Avalanche Method prioritizes paying off the accounts with the highest interest rates first.

How it works: Gather the interest rates of all of your accounts by logging into the bank portal or viewing your bank statements. Arrange your accounts from the highest interest rate to lowest. Now, similar to the Snowball Method, begin making the largest payment that your budget allows on the account with the highest interest rate. Continue to make monthly minimum payments on the rest of your accounts.

As you pay off your first account, roll that same payment amount over to the next account and add it to the minimum payment you had already been making. Once your debt is paid off, you will have most likely saved hundreds or thousands of dollars when compared to the Snowball Method.

Pros: The Avalanche Method is the mathematically logical way to pay off debt because it saves the most money in the long run. 

Cons: Unfortunately, the Avalanche Method is generally slower than the Snowball Method since you may end up paying off your highest balanced accounts first. 

Additionally, you may not benefit from the quick succession of small victories that the Snowball Method affords. Overall, this may lessen your motivation to continue paying off debt.

Alternative Method

An alternative method for paying off debt is the inverse of the Snowball Method. Instead of paying the lowest balances first, pay the highest balance. 

Tackling the largest balance first means that paying off overall debt will become easier as you progress. Psychologically, this can increase motivation more than the traditional Snowball Method because the larger balances won’t continually loom on the horizon.

Bottom Line

Paying off debt must be strategical. The snowball method and the avalanche method are the two best ways to pay off credit card debt. Use the Snowball Method for the best motivating experience, and increase your credit score at the same time, or use the Avalanche Method to save the most money over time.