Debt Avalanche vs. Debt Snowball: Which Is Better?

Debt Avalanche vs. Debt Snowball: Which Is Better?

Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life.

[MichaelSmith-fjdi]

1: Payday loans are first.
2: IRS debt is next.
3: 401(k) loans are next.
4: Then, use the debt avalanche.
5: Always get the company match.
6: Unless nearing retirement, I’d recommend investing excess dollars above the minimum payments if all your debts are below six percent. If nearing retirement or if you already invest a considerable portion of your income, then you should pay them off.

[anniealexander]

Definitely pay off high interest first!

[Benjam]

I utilized the snowball method at one point, not because i needed the "psychological win", or momentum, but because it allowed me to quickly knock out a monthly payment and free up that much cash flow each month.

[mrbigstuffication]

The debt snowball is a huge trap idea. Sure if you have a bunch of small loans on furniture and cheap used cares it might feel better, but there's no reason to pay down a $5k car loan at 8% before $10k of credit card debt at 30%. If your loans are small/close enough for the snowball method to be okay, they're close enough for it to not matter, and if it matters you should avalanche 99% of the time.

[MagnoosChess]

Pay the highest apr first. Always. There is only 1 way.

[darellhunter]

Snowball worked for me and my family personally! Credit cards were also the smallest total balances with highest rates, considering we also had vehicles and student loans... so i guess we had the snowball/avalanche combo.

Edit: the main takeaway is to get out of debt asap regardless of which method you choose.

[neverclevernorwitty]

Which one is better? The plan you actually follow through on and emerge debt free.

[greydaze]

I was helping a friend decide whether to use the avalanche or snowball method, he was stuck in analysis paralysis for several months weighing the pros and cons (and not actually paying anything down). He asked for my opinion, and I asked if he wrote down the debts in order for each method. Of his six debts, the lists only swapped debts 2 and 3! So I asked him, of those two, which did he hate more? He ended up with the avalanche method, but I pointed out the exact method doesn’t matter as much as getting started and attacking one at a time!

[albertweidinger]

First off, thank you guys. I watch y'all all the time! Y'all did a really good show on what buying a car really cost you. Paying the interest and buying a new car as soon as you're done with the payments. Please help me find that video! I want to share with my friends. That money could have went into investments and made millions.

[worldnomad]

If you have all of this debt from multiple loans, how can you really say they have the behavioral part down?

[CharleneCong]

One thing I've found super helpful is setting up automatic transfers to my savings account right after payday. It's like paying myself first before anything else. Takes the temptation out of spending too much, and I'm always surprised by how quickly it adds up. Helpful content! i just did a video on a similar topic, welcome to check back!

[La_sagne]

for really small debts i like snowball.. but if it takes multiple years anyway, go for avalanche and just look at it more frequently to get your "small win".. look and see how the principal portion goes up while the interest portion goes down

[qbanb]

If I'm using a small amount of money on monthly or biweekly basis I'm going to do the debt snowball. But when I get a large amount of money like when I sold my rental property I focused paying off the ones with the highest interest rate. The debt snowball made the debt I had less overwhelming and the small wins really helped.

[wpelfeta]

One thing that doesn't get talked about, is that if you Debt Snowball and pay off smaller debts, it unlocks cashflow that can give you more leeway in an emergency. That can be a double edged sword of course, if you don't have full control over your finances, but I think it is worth considering.

[davidmilhouscarter]

If you are making spreadsheets and doing math, then you wouldn’t have the debt.

[ExitSiign]

Snowball is good for small balances you can pay off within a month or two or cards that you don’t need to continue using. Simplifying the cash flow can be very useful. If you don’t have a budget buffer you have to spend a lot more effort towards making sure each bill is covered on the date it comes out. If a small balance is sitting at 3% interest I’m never paying that before a 20% credit card, however.

[BiggMo]

(Brian’s Troll here) … this is a solid summation..

[ryanspalding]

I preferred the snowball method and paid off my ~$22K in student loans in 2022 and have been debt free ever since

[pasiojala]

There's also nothing preventing you from doing 50% of one and 50% of the other. What matters is that you're consistent and don't let yourself off easy.

(Never had any high-interest debt myself, and paid off my small student loan -- this if Finland -- in one go and my apartment loan in 5 years. I use a credit card, but it gets automatically paid in full each month.)

[MusicMike]

There are many ways; however, I have reasons for feeling the snowball method is superior. Every reason you stated here.

Once the snowball method begins, you are going to be banking wins in a hurry; satisfying accounts, cutting up cards, and feeling better almost immediately