How to Payoff Debt: Avalanche vs. Snowball Method

How to Payoff Debt fast: using the Avalanche and Snowball methods! This is the first in a series on Personal Finance for Beginners, enjoy!

The avalanche method prioritizes the highest interest rate debt to be paid off first. The snowball prioritizes the smallest balance.

Let's say you have 3 sources of debt
Car Payments, Credit Card Payments, and Student Loans.
-You owe $9000 on your car, and your interest rate is 3%
-You owe $10000 on your credit card, and the interest rate is 18.99%
-You owe $15000 on student loans, and the interest rate is 4.5%.

In the avalanche method, you're paying off the credit card balance first, then the student loans, and then finally the car payment. (10000, 15000, 9000).

In the snowball method, you'll pay off the car payment first, credit card 2nd, and then student loans 3rd.

Now in this HYPOTHETICAL example, lets say you can pay off 3k a month in debt (just as an example). The most efficient one financially is the avalanche method, and by doing this order you'll pay $1011 in interest, versus if you did the snowball method you'd pay $1514 in interest. The difference is going to be even magnified more if you can't pay off 3k a month in debt.

So while the avalanche method may payoff your debt in a more efficient manner, sometimes the psychological wins are WAY more important in getting there.

Personally I think making progress on anything is better than nothing - and if you're the type of person who can stay disciplined when it comes to paying off debt - the avalanche method is the way to go.

▶️ My name is Humphrey Yang, I am an entrepreneur who has built businesses and am passionate about Personal Finance. This channel is dedicated to helping people (whether you're 21 or 81) become better with Personal Finance, Investing, and Entrepreneurship. I hope these videos help!

Disclaimer: I am not a financial advisor, any investment commentary are my opinions only. Some of the products and services that appear on this channel are from companies that I have an affiliate relationship with, such as Robinhood, for which I recieve a small percentage made via those links, but it doesn’t cost you anything extra!

[charlesbolon]

I think you nailed it with the comment "this is great if you have no self control" I think that's why people like Dave Ramsey promote that method so much. People that struggle with debt usually don't have self control, so that method works really well. Honestly most of Dave's stuff seems geared towards people with no self control.

Great video BTW.

[cleffordandam]

Hello! I’m your follower from PH. I’m currently teaching basic finance in a community college right now and I just want you to know that your videos are really comprehensive and on point. It have been helping me to further improve my understanding about finance and my teaching approach at the same time. Thank you Humphrey 👌.

[elymorales]

This is so useful. Thanks a million!!!

[Joshua_t]

Loved the video

You should make a video about robinhood

[cameronhukari]

This is very useful, as a 16 year old with no debt yet this will help a lot

[dariacolombo]

Hi Humphrey. Thank you for sharing this video. I found it very helpful. I would love to hear your thoughts concerning consolidating credit card debts through credit counseling agencies. Following your channel now. Have a great night.

[katiefinley]

Curious if you have bought a house? If yes, could you make a video about your experience? If no, a video on reasons why or about any future real estate goals?

[hasba]

Can you do a video on how to file past years taxes? And how to pay large back taxes?

[kwars]

hey humphrey! I know you made a tiktok about dividend ETFs awhile back and with the last video you made I was wondering if you could make a video about your opinions of the popular Dividend ETFs.

[Hanyou]

Got a video on paying off student loan debts specifically

[Ryan-gxhs]

Aside from investing and bills, how long do you think you could go without spending money?

[scouth]

It would be great to also talk about what accounts to pay off according to which would help your credit score. I hope that makes sense. I’m struggling to know which credit card balance being paid down would help my scores the most. I only have one closed negative account. Some say don’t pay anything on the closed as it won’t help my score so then start using your avalanche method and that would impact the score quicker? This is why I’m confused. Thanks. Your videos have helped a lot.

[brandoncampos]

In addition to the minimum payments each month, is there any benefit to paying off a large chunk of a debt? 25% for example. Or is it better to save that 25% until you have the 100%? Is there any point where interest would just ‘swallow up’ a larger payment?

[jasonyoon]

Hey Humphrey, I just saw your Jeff Bezos rice video, and subscribed instantly :D

My question is: Are you supporting your parents financially? If so, how would you go about helping your parents retire?

On one hand, I want most of my money to go to work. But on the other hand, it pains me to see my parents stuck in the rat race, and want to help them out asap.

So, how can you strike a good balance between these 2 needs?

I don't see too many videos on YouTube about this, so if you can make a video about this in the future, it'll be very helpful.

Thanks for your awesome content!

[zeandrelee]

Awesome, this was helpful.I have a student loan of 23 k. Do you know how I can negotiate to pay it down faster? I am just paying the minimum right now

[mahammad]

Hey, here from Tiktok! Quick question, you've mentioned in the past closing a credit card is bad due to erasing credit score history, lowering score etc.

You've got to start somewhere so most 18 year olds will probably end up with bad rewards and overall bad credit card. Say when you're 25 or so and you're ready to move on to big boy stuff 😂, is it better to have 2 credit cards (old one just being left alone and not used at all) or better to close the credit card after all?

Would love to get your thoughts on this!

Edit: if closing is better, should it be done before or after joining the new card company? Would it look bad to have a pre-existing credit card in the eyes of your new card company?

[pigactor]

Are disciplined people less likely to get swamped in debt in the first place?

[jahara]

right now in my life I’m basically just starting out, I have a debit card and a lot of money in savings but no credit card. I was actually worrying about credit scores and payments bc I’m growing up and need to start adulting, I came across you from TikTok and I’ve been binging all your videos, thank you for all the tips, it’s scary when you don’t know what you’re doing 🥺

[anthonyrangel]

Okay so what do you mean “pay off first”. Like in the first example do you mean only paying the credit card until it’s 100% and THEN the student loan. Or pay more money towards credit card while still paying the other two. (Sorry if it’s confusing)

I ask this because I currently have 3 credit cards with the balance of:
1. $2, 000 (16.99%)
2. $650 (21.99%)
3. $1, 900 (25.24%)

Should I focus on one and not pay any until it’s completely free then move on? Or pay all 3 simultaneously?

Great content btw! Really helpful

[krakken]

Zero debt for me. I pay the whole balance on my credit cards 15th of every month too.