I spent years paying off debt with absolutely no plan in place.

I would make the minimum monthly payments on my student loan each month. I also applied for the income-driven plans to try to reduce my monthly payments even more.

When I started racking credit card debt after my divorce I did the same thing. I made the minimum monthly payments. I figured it wasn’t a big deal, since my credit card had an interest-free promotional period.

Eventually, it became clear this plan (or lack thereof) wasn’t going to cut it anymore. 

First, the interest-free period on my credit card ended, and I realized just how damaging a 20% interest rate can be.

Then Brandon and I got married, and had a combined six-figures of debt. We knew we didn’t want that much of our monthly income going toward debt forever. 

When we decided to get serious about paying off debt, I spent a lot of time playing around with different scenarios. I knew that the debt snowball and debt avalanche were the two most popular debt payoff plans, and I wanted to figure out which was best for us. 

We ultimately chose the debt avalanche to pay off our debts. It isn’t necessarily the right choice for everyone, but it absolutely is for us!

In this post, I’ll dive into the different debt payoff plans — the debt snowball and the debt avalanche. I’ll share the pros and cons of each, and why we went the route we did!

 

Debt Snowball vs. Debt Avalanche: Which Debt Payoff Strategy is Right For You?

 

What is the debt snowball?

 

The debt snowball is a debt payoff plan where you pay your smallest debts off first. Each time you pay off a debt, you snowball the money you’re saving into your next smallest debt.

Here’s how the debt snowball works:

  1. Make a list of all of your debts, smallest to largest. 
  2. Decide how much you can afford to put toward debt each month. Ideally, this number will be larger than the sum of all of your minimum payments. 
  3. Make the minimum payment on each of your debts, except the smallest. Put the extra money each money toward that smallest debt.
  4. Once you pay off the smallest debt, take the money you were putting toward it each month and start putting it toward your next smallest debt. 
  5. Each time you pay off a debt, your snowball will get bigger and bigger. Once you get down to the last debt, you’ll be putting your entire snowball toward it each month.

 

Pros of the debt snowball:

  • The debt snowball gives you small wins. By paying off your debts smallest to largest, you get to celebrate another debt paid off more often. This can be a huge motivator!

 

Cons of the debt snowball: 

  • The debt snowball only considers the size of each debt, not the interest rate. This could result in you paying more in interest than if you did the debt avalanche. 

 

What is the debt avalanche?

 

The debt avalanche is a debt payoff plan where you pay off your debts in order of the interest rate, starting with the highest interest rate and working your way to the lowest. 

Here’s how the debt avalanche works:

  • Make a list of all of your debts ordering them from the largest interest rate to the smallest.
  • Decide how much you can afford to put toward debt each month. Ideally, this number will be larger than the sum of all of your minimum payments. 
  • Make the minimum payment on each of your debts, except the one with the highest interest rate. Put the extra money each money toward that debt.
  • Once you pay off the highest-interest rate debt, take the money you were putting toward it each month and start putting it toward the one with the next highest interest rate. 
  • Each time you pay off a debt, your avalanche will get bigger and bigger. Once you get down to the last debt (the one with the lowest interest rate, you’ll be putting your entire avalanche toward it each month.

 

Pros of the debt avalanche:

  • The debt avalanche is the method that will have you paying the lowest amount over the long-run. Because it requires you to pay down your high-interest debts first, you end up saving money.

 

Cons of the debt avalanche: 

  • And depending on how big your high-interest debts are, you might not have any wins for awhile. It really doesn’t account for the fact that debt (and money in general) is a super emotional topic for most of us. 

 

Which is best?

 

Let me preface this by saying that personal finance is just that: Personal. And because of that, there’s rarely one financial decision that’s best for everyone.

Having said that, I really encourage my clients to use the debt avalanche in almost all cases. From a financial perspective, the debt avalanche is the better choice. 

It will have you paying your debts off faster and saving money on interest. And depending on how much debt you have, the difference could be significant. 

Brandon and I have six-figures of student loan debt and previously had significant consumer debt, and the difference between the debt snowball and debt avalanche was thousands of dollars! 

The only time I recommend the debt snowball is if you really struggle to stick to any sort of financial plan, but are really motivated by wins. 

Any debt payoff plan is better than no debt payoff plan at all. So if those little wins will be the only thing keeping you going, then that’s the right plan for you! 

 

Final Thoughts

 

Hopefully, this post gave you a good overview of the debt payoff plans available to you. There isn’t one right choice that works for everyone. But one of these plans is sure to work for you!

I also cover debt payoff a LOT in my coaching program, the Wealthy Millennial Program. I go through your debts with you so we can figure out the best debt payoff plan for you. Not only that, but I help keep you accountable with regular check-ins and by helping you to navigate those unforeseen expenses that come up, throwing you off your debt payoff plan. 

Wanna learn more? You can grab all the info and sign up for a free discovery call here!