Budgeting
Debt Avalanche vs Snowball: Compare Payoff Plans
By Ryan Davidovich, founder of BudgetR
Published · Updated
Short answer
The avalanche method sends every extra dollar to the debt with the highest interest rate, and the snowball method sends it to the smallest balance. Avalanche usually costs less interest, while snowball clears whole debts sooner and can be easier to stick with. In the example below both plans finish in the same month and differ by about $300 in interest.
How each method works
Both methods start the same way: pay the minimum on every debt, then put every extra dollar on one target debt. When the target is paid off, its former payment, the minimum plus the extra, rolls to the next target. The only difference is the order of the targets.
- Avalanche: order debts by interest rate, highest first. With a fixed total monthly payment, this order minimizes total interest.
- Snowball: order debts by balance, smallest first. Each payoff arrives sooner, which some people find motivating.
- Custom: any order you choose, for example to clear a debt with a prepayment penalty or a variable rate first.
Neither method changes the total you pay each month. The plan is only a rule for where the extra goes.
Example: three debts and $300 extra a month
Example: three debts with $460 in combined minimum payments, plus $300 extra each month, so $760 goes to debt every month. The results come from a simple month-by-month simulation that adds interest monthly at one-twelfth of the annual rate and assumes no new charges. Results are rounded and illustrative; lender statements will differ in the details.
| Debt | Balance | APR | Minimum payment |
|---|---|---|---|
| Store card | $1,800 | 12% | $50 |
| Credit card | $6,000 | 24% | $150 |
| Personal loan | $9,000 | 15% | $260 |
| Total | $16,800 | $460 |
Example: what each plan produces
Avalanche targets the credit card first (24%), then the personal loan, then the store card. Snowball targets the store card first (smallest balance), then the credit card, then the personal loan.
| Result | Avalanche | Snowball |
|---|---|---|
| First debt cleared | Credit card, month 16 | Store card, month 6 |
| Second debt cleared | Personal loan, month 26 | Credit card, month 19 |
| Debt-free | Month 27 | Month 27 |
| Total interest | About $3,390 | About $3,690 |
Avalanche saves about $300 of interest here, and both plans finish in month 27. Snowball clears its first debt ten months earlier, which removes a payment and an account to manage sooner. For comparison, paying only the minimums, with no rollover, would take about 82 months and about $9,500 of interest.
The gap depends on how far apart the rates are and how the balances compare. When the smallest debt also has the highest rate, the two methods give the same order.
What a simulation cannot see
Any payoff projection, including the one above, rests on assumptions that real accounts break.
- New charges: adding to a card while paying it down slows everything, and the simulation assumes you do not.
- Rate changes: variable rates and the end of a promotional rate change the ordering and the cost.
- Fees: late fees, annual fees and balance-transfer fees are not part of the interest figure.
- Payment timing: interest accrues daily on many cards, and the month a payment posts can shift a result by a small amount.
Use the projection to compare plans, not to predict the exact final payment. Re-run it whenever a balance or a rate changes.
Choosing between them
If minimizing interest is your priority and you will follow the plan either way, choose avalanche. If earlier wins help you stay on track, snowball's extra cost may be worth paying, and you can measure that cost before you decide, as in the example. A plan you keep beats a better plan you abandon. The logic on each side is simple. The highest-rate debt grows fastest while you leave it alone, which favors avalanche. A debt that is nearly gone frees its payment soonest, which is the appeal of snowball. Also check these points before you commit:
- Look beyond the rate: a prepayment penalty, a promotional 0% period that is about to end, or a variable rate may deserve priority.
- Keep a small emergency buffer so an unexpected bill does not go back on a card.
- Confirm that your lender applies extra payments to principal. Some apply them to the next scheduled payment unless you say otherwise.
How to do this in BudgetR
- Enter your loans and credit cards with balances, interest rates and minimum payments, or connect the accounts.
- Open Debt strategy in the Plan section. It shows Avalanche (highest rate first) and Snowball (lowest balance first) side by side, each with its debt-free month and total interest.
- Enter a monthly extra amount and, if you have one, a one-time payment. Both plans update together, and a target date estimates the monthly extra needed to finish by then.
- To use your own order, reorder the debts to make a custom plan, and set a cash-flow reserve so the plan leaves room in your monthly budget.
- Activate a loan strategy to schedule its extra payments in your annual budget. Credit cards appear in the preview but do not become scheduled payments, and BudgetR does not send payments; you still pay each lender.
Key takeaways
- Avalanche targets the highest rate and usually costs less interest; snowball targets the smallest balance and clears debts sooner.
- In the example the difference was about $300 in interest and both plans finished in the same month.
- Both methods keep the total monthly payment the same and roll freed payments to the next debt.
- Check for prepayment penalties, promotional rates and how your lender applies extra payments.
- Compare the two plans with your own numbers before choosing.