Debt Avalanche vs Debt Snowball (Each Strategy Explained)

Debt Avalanche vs Debt Snowball (Each Strategy Explained)

Sitting on many different debts can be intimidating to say the least. Carrying student loans, credit card debt, auto loans and a mortgage can make determining where to begin your debt payoff strategy confusing. You know being debt free is a huge financial accomplishment that will free up your income for many other more exciting things. That extra money could be used to invest or take a much needed vacation. It could be set aside so you can pay for your next vehicle in cash or it could just provide some extra breathing room in your budget. A well thought-out repayment strategy can be a roadmap to becoming debt free as soon as possible so you’re not burdened by those monthly obligations. There are two main debt payoff strategies that are commonly used but which you choose comes down to personal preference. Let’s see the differences so you can make an educated decision that will help you become debt free years sooner than if you hadn’t implemented a proven strategy.

[michaelcurtis]

I can verify from personal experience that the debt snowball works. That being said, I've seen the math for both methods and I agree that the debt avalanche is more efficient. I also agree that people are more likely to follow a plan where they see progress as opposed to a plan where the progress takes a little longer to materialize.

[roburb]

Debt Avalanche is the financially smart choice, it's not debatable. Debt snowball is if you're the type of person that needs a "win" to stay motivated. 🤷🏼‍♂️

[Dogbullet]

I paid off all my debts using the snowball method. Became a Dave Ramsey fan after being able to be debt free.

[DemetriPanici]

I'm a fan of the debt snowball but both strategies are pretty solid

[freedomring]

The snowball affect is more psychology than practical math. By getting those wins early you begin to believe that you can get out of debt. This is why Dave Ramsey's advice in regards to paying off bad debt works. You are changing your mind set.

[OurMoneyQuest]

We used the Debt Avalanche method to help us become Millionaires by age 35 and retire at age 38!

That being said, the debt snowball method has its used and is probably better for people that need more psychological wins along the way to paying off debt.

[joemcdonnell]

Having watched several personal finance videos from your channel and others, I personally feel that while both approaches have their benefits the Debt Avalanche approach is better suited for me. I want to get out of debt as quickly as possible and even if it takes longer to pay off the first account versus the snowball method it will end up costing me less money and it will take less time overall; which for me is motivation enough.

[hhwin]

I prefer snowball method. It takes away the feeling of being overwhelmed by numbers of outstanding debts. If you pay off fast then it doesn’t matter much that you pay more in interest.

[rbkahuna]

I just started the snowball a couple of months ago. So far so good.

[philipepling]

In general, people who are deeply in debt got there because they don't have the self-discipline necessary to win with the avalanche method, which is why Dave Ramsey pushes the snowball method. The snowball method basically hijacks your psychology (by creating dopamine hits every time you clear out a debt) to keep you working at the problem.

My recommendation when choosing a method is to consider how you got into such a mess in the first place. If it was due to a single unplanned event because you took on too much risk, then the debt is unrelated to your focus or discipline and the avalanche is probably going to work better for you. If it was because you neglected your financial health and simply made error after error your whole life, then you probably need the snowball method to keep you on track.

[untitledC]

Wouldn't bother paying your mortgage off early, invest the different of what you would be paying off extra each month and get a much better return then the interest you save on paying down your home, +inflation will decrease the value of your original loan so the same payment wont have the same affect later on when your making more money anyways.

[TheStanleyWay]

Excellent explanation of the debt snowball. Most people that choose the avalanche and think the snowball is stupid do not have a full understanding of the snowball method.

Also, if you are intense about paying off your debt, as you should be, then the math is almost irrelevant because the debt will be paid off so quickly. Do the math on both and see the difference if you are unsure. Great video!!

[onebridge]

I did a mix of both when I started. I paid all the small balances then did the avalanche method on my multiple student loans.

[gns]

Actually, paying off that $20k 20% interest loan would result in more money saved, and thus more money that could be used to quickly clear off the 6% loan in a far shorter period of time than if the snowball method was used.

The avalanche method would probably result in clearing off all the debts sooner, resulting in a bigger win and sense of accomplishment. The problem is that the majority of people in debt have low self control / discipline and would probably give up halfway into clearing off the larger loan, and fall back into their old habits.

[tritt]

Loved the video! Would you be able to do a video on whether it makes sense to pay off student loans (or any loans) first or invest first? Thanks man, keep up the good work!

[brucestiles]

Debt Avalanche makes more sense economically, but if you have a very small balance on a debt, there is gratification to be found by picking off a small debt to "clean up" and simplify your debt payoff project.

I suggest that somewhere in your financial management system you maintain a spreadsheet that shows the end-of-month balance of each debt, and your total debt. You can look at the declining month-over-month total debt amount to help you to stay motivated.

[alexandru]

While I normally like too think long etrm and save as much as possible, I do believe the snowball method actually works best, since it will probably take about the same amount of time too pay off the debt with both methods (with exceptions.) Might as well not feel like you're overwhelmed

[YasinNabi]

Every passive income needs a good strategy to start and keep the income to be flowing in in the future :

[billyscarbrough]

I'm curious why there isn't a method that focuses on interest payment instead of interest rate. If you have two debts, $10, 000 at 20% and $25, 000 at 10%, then you're paying $166/mo in interest per month on the 20% interest rate and $208/mo on the 10% rate. It would be more beneficial in the long run to focus on paying down what costs you more interest in the long run since that will help pay the debt off faster. In this case, the 10% interest rate debt first.

[outsidethebox]

Both ideas seem effective, however, if you have a fixed rate loan/mortgage (debt), then paying it off faster is not always a good idea....due to higher inflation rates eroding the purchase power of your money you would be better off paying the debt off at the set amount and investing the extra cash you have, instead of adding it to paying off the next debt....

For instance, say you pay 457 for a mortgage each month over 30 years at a fixed 457 in ten years would be equivalent to 305 (ish) a month, in twenty years 180....(rough figures but you're in effect paying less each month due to currency erosion).

Yes paying off debt does free up more spendable income, but that income won't buy you as much as it did 5, 10, 15 years ago.