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Debt Snowball vs. Debt Avalanche: How to Pay Off Your Student Loans and Other Debts

Has debt left you frozen in place? You know you need a plan to get out, but are not sure which method to use. The only option that everyone agrees doesn’t work, is ignoring your debt and not building a path to repayment.

Two popular repayment paths that you may have heard of are the debt snowball method and the debt avalanche method. But which is right for you?

The Debt Snowball Method

In the snowball method, made popular by Dave Ramseyyou list your debts from the smallest balance to the largest and focus on paying off the smallest debt first. You will need to continue making minimum payments on all of your debt, but use the majority of your funds on knocking out the smallest debt source first.

The snowball method creates a sense of achievement and momentum. Once you get started you will pay off your smaller debts quickly and cut down the number of bills you pay each month, working your way up to larger balances.

While this method will lead to a quick sense of accomplishment, it doesn’t prioritize paying off the most costly bill, and might not be the most cost-effective strategy.

Even if it isn’t the cheapest method, both the Harvard and Northwestern business schools have put out studies supporting the snowball method as the easier of the two to stick to. From the Harvard study, “‘pay the smallest debt first’ is a straightforward strategy that can be easily communicated and easily applied.”

The Debt Avalanche Method

What if you want to prioritize paying as little as possible? For borrowers looking to use their money the most efficiently to pay off loans and can keep the long-term savings as motivation, the avalanche method will be a better fit.

In the avalanche method, you create a list of all your debts from highest to lowest interest rate. While continuing to make minimum payments on all your debts, each month you will put the majority of your funds towards paying off the debt with the highest interest rate. Once that first debt has been paid off in full, you work your way to the next highest interest rate loan, continuing the process until you are debt free.

For some, this could mean hundreds or thousands saved in high-interest payments that wouldn’t be applied to the principal due. However, it can mean that you have to tackle large loans first and spend more time with a number of debt channels. The avalanche method requires more self-motivation and a big picture outlook. 

Debt Snowball vs. Debt Avalanche: Which Method Should You Use?

The decision on what method comes down to which will help motivate you to stick to your debt repayment plan. If you want to get momentum up by paying off smaller bills and feel that sense of accomplishment soon, then the snowball method is for you.

If you have a spreadsheet for everything and can remain positive and motivated while knocking out the debt with the highest interest rate, the avalanche method is a clear winner.

No matter the method you pick, you need to continue making the minimum payments on all of your bills. Don’t let unnecessary fees come into play and either method can be a great solution for getting your debt under control.

Learn more: The Importance of Making On-Time Loan Payments

This article was written by Carolyn Pairitz Morris, Senior Editor at Earnest.

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.