The Short Version
When you have multiple debts, two common strategies help decide which to pay off first (while still making minimum payments on the rest). The 'avalanche' method targets the highest-interest-rate debt first, minimizing total interest paid mathematically. The 'snowball' method targets the smallest balance first, regardless of rate, aiming to build motivation through quick, visible wins. Both work — the better choice often depends on whether you need the math optimum or the psychological momentum to actually stick with the plan.
Explain It Like I'm 10
Imagine you have three chores to finish: a quick 5-minute one, a medium 20-minute one, and a long 45-minute one that's also the most tiring. One approach is to knock out the quick one first just to feel a win and build momentum (snowball), even though it's not the most urgent chore. Another approach is to tackle the most tiring one first because it saves you the most effort overall in the long run (avalanche). Both approaches get all three chores done eventually — they just optimize for different things: feeling versus efficiency.
Step-by-Step Example
- 1 Debt A: $500 balance at 12% interest. Debt B: $2,000 balance at 24% interest. Debt C: $5,000 balance at 8% interest.
- 2 AVALANCHE method: put extra payments toward Debt B first (highest rate, 24%), even though it's not the smallest — this minimizes total interest paid across all three debts.
- 3 SNOWBALL method: put extra payments toward Debt A first (smallest balance, $500), clearing it quickly for a motivating early win, even though its rate isn't the highest.
- 4 Mathematically, avalanche will almost always cost less total interest by the time all three debts are paid off.
- 5 But if snowball's quick wins are what keep someone consistently making extra payments instead of giving up, it can produce a better real-world outcome despite costing slightly more in interest.
Quick Recap
- ✓ Avalanche: mathematically optimal — pays the least total interest over time.
- ✓ Snowball: behaviorally motivating — clears whole debts faster, which research suggests helps some people stay committed.
- ✓ Either method requires continuing minimum payments on every other debt — the strategy only decides where extra payments go.
- ✓ The 'best' method is ultimately the one you'll actually stick with until all the debt is gone.