Paying off several debts is a sequencing problem: once the minimums are covered, which debt gets the extra money? The two classic answers are the avalanche and the snowball. This guide runs both on one example so you can see exactly what the choice costs.
The example
Three debts, with minimum payments totalling $175 a month, and an extra $200 a month to put towards them.
| Debt | Balance | APR | Minimum payment |
|---|---|---|---|
| Card A | $5,000 | 22% | $100 |
| Card B | $2,000 | 15% | $50 |
| Loan C | $800 | 9% | $25 |
Two ways to aim the extra money
- Avalanche: pay the minimum on everything, and put all the extra on the debt with the highest interest rate. When it is gone, roll its whole payment onto the next highest rate. This minimises total interest.
- Snowball: put the extra on the debt with the smallest balance, regardless of rate. Early wins come quickly, which helps many people stay motivated.
In both plans the total monthly payment stays at $375; as each debt disappears its payment is added to the next target.
What each plan costs
| Plan | Months to be debt-free | Total interest |
|---|---|---|
| Minimums only (each debt alone) | 137 | $9,586 |
| Snowball (smallest balance first) | 28 | $2,050.44 |
| Avalanche (highest APR first) | 27 | $1,629.85 |
The avalanche finishes a month sooner and saves $420.59 against the snowball. Paying only the minimums on each debt separately takes 137 months, more than 11 years, and costs about $9,586 in interest, nearly six times the avalanche. Payoff order: snowball clears Loan C (month 4), Card B (month 12), Card A (month 28); avalanche clears Card A (month 21), Card B (month 26), Loan C (month 27).
Run your own numbers in the Debt Payoff Calculator, which compares both strategies.
Why minimum payments are so slow
Interest is charged on the whole balance each month, so a payment barely above the interest barely reduces the debt. $5,000 at 22% APR costs 5000 × 0.22 / 12 = $91.67 in interest in month one, so a $100 payment cuts the balance by only $8.33. The number of months follows from n = −ln(1 − r·B / M) / ln(1 + r), which gives 136.8, so 137 payments, and $8,678 of interest on a $5,000 debt.
Consolidation: one loan for several debts
Consolidating replaces the debts with one loan. The three balances above total $7,800 at a weighted average APR of 18.87%. Consolidation helps only if the new loan's APR is lower than that average and you do not stretch the term so far that total interest rises, and watch for origination fees. Compare the current path with the consolidated one in the Debt Consolidation Calculator.
Which should you choose?
- The avalanche is cheaper in every case, because it targets the highest rate.
- The snowball is worth the extra cost if the quick wins keep you paying. A plan you follow beats a plan you abandon.
- When the smallest balance also has the highest rate, the two plans are identical.
- Either way, stop adding new debt, and keep a small cash buffer; see the Emergency Fund Calculator.
Common mistakes
- Letting freed-up payments disappear. The strategy only works if each cleared debt's payment rolls forward.
- Paying only the minimum on the target. The "extra" must be on top of its minimum.
- Ignoring fees and promotional rates. A 0% balance transfer with a 3% fee can beat the avalanche; compare real costs with the Loan Comparison Calculator.