How each method works
Both methods start the same way: pay the minimum on every debt, then send everything left in your monthly budget to one target. When that debt is cleared, its old payment rolls onto the next target, so the amount going at the debt grows like a snowball. The only difference is how the target is chosen.
Each month interest is added (balance x APR / 12), every minimum is paid, and the rest of a fixed budget goes to the target debt. The budget equals all the minimums plus the extra amount and stays the same after debts are paid off. No new borrowing, fees or rate changes are modeled. Snowball targets the lowest balance, avalanche targets the highest APR.
A worked example
Three debts: a $500 family loan at 6% (minimum $25), a $4,000 credit card at 24% (minimum $90) and a $2,500 personal loan at 15% (minimum $60). The budget is the $175 in minimums plus $100 extra, or $275 every month.
| Snowball | Avalanche | |
|---|---|---|
| Targets first | Family loan ($500) | Credit card (24%) |
| Debt-free in | 35 months | 33 months |
| Total interest | $2,466.72 | $2,033.14 |
| Order cleared | Family loan (month 5), personal loan (19), credit card (35) | Family loan (22), credit card (27), personal loan (33) |
Avalanche saves $433.58 and finishes two months earlier, because the 24% card stops growing sooner. Snowball shows a payoff in month 5, though, and a motivation boost is real for many people. The gap in cost depends on how far apart the rates are and how large the highest-rate balance is.
Choosing between them
If the balance with the highest rate is also the smallest, both methods give the same plan. If every rate is the same, snowball costs nothing extra. The two diverge when a large balance carries the top rate. In that case the avalanche order saves interest, and the snowball order buys earlier wins.
The best method is the one you will keep following until the last debt is gone. The calculator lets you see what the choice costs in dollars so you can decide with the numbers in front of you. If the budget cannot cover the interest on the debts, it says so and asks for a larger payment instead of showing a payoff date that will never happen.
Common mistakes
- Dropping the freed-up minimum after a debt is cleared. The method works because that money rolls to the next debt.
- Ignoring the minimum on the other debts while attacking one. Missing a minimum brings fees.
- Picking snowball or avalanche and then abandoning the plan after a few months.
- Using a promotional rate as if it lasted forever. Update the rate when it changes.
- Adding new charges to a card you are paying down.
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