Paying off your credit card debt: How debt snowballs & avalanches work

October 05, 2015

By Pam Leibfried

Paying off your credit card debt: How debt snowballs & avalanches work

Smiling man in blue and white checkered shirt on mobile phone paying bills on his laptop

When experts in debt reduction talk about ways to pay off credit card debt, they often talk about two differing methods that are named using a snow metaphor: One is called the debt snowball and the other is called the debt avalanche. But what do they mean when they talk about a snowball versus an avalanche? And how can you decide which method is the right approach for you?

The debt avalanche

The avalanche method prioritizes your credit card debts by the rate of interest you pay on each card. You pay just your minimum monthly payment on all cards except the credit card charging the highest interest rate. You put every extra dollar you can toward paying off that single, highest-interest card.

Paying off the card that costs you the most will save you the most money in the long run. Once you’ve paid off the highest-rate card, you put your extra effort into paying down the next highest-interest card. By the time you’ve successfully paid off the priciest credit card, you‘ll be able to apply more resources toward your debt each month because you’ll be making payments on fewer cards while paying less interest and more principal on your remaining debt. By the time you get toward the end of your prioritized list, the remaining card balances will fall quickly, like an avalanche.

The debt snowball

The snowball method doesn’t focus on interest rates. Instead, it says that you should start small, paying your minimum monthly payments on all cards except the credit card with the lowest-balance. You put as many dollars as you can toward paying off that smallest debt, then you move on to your second smallest balance. Think of it as starting with a snowball, then watching that snowball grow as it rolls downhill and picks up more and more snow from the mountain.

But why would you choose the snowball method when you’ll end up paying more interest in the long run by not paying down your highest-rate cards first? The reason is all about human psychology. When facing a mountain of credit card debt, some people get very frustrated when it takes them a long time to pay off that first big card balance. They get discouraged and feel like they’ll never succeed at paying down all their debts, so they give up entirely. By using the snowball method, they get a quicker “win,” and that confidence boost helps them to carry on with paying down the rest of their debts.

It’s sort of like weight loss. If you tell yourself that you have to lose 75 pounds, you may get discouraged and give up the first time the number on your scale plateaus. But if you’re focused on a smaller goal like losing 10 pounds or 5% of your body weight, you will experience success more quickly and have confidence as you pursue your larger goal.

Pick the best debt repayment approach for you

The reason that there are two common approaches to debt reduction – and they are so widely known that they even have metaphorical nicknames – is that each method has been successful for a lot of people. The trick is figuring out which approach will work best for you. Some advisors may insist that because the avalanche method reduces the total interest paid, it is the best or only way to go. But the reality is that even if something is the best approach on paper, it doesn’t do you any good if it doesn’t work. So if you think the snowball method will work better for you, trust your gut. You know your situation, attitude and personal tendencies better than anyone, and only you can decide which approach is best for you.

  • If you relish attacking a long-term goal and don’t tend to get discouraged if it takes a while to achieve it, the avalanche method is probably right for you. You can knock down your pricey debts sooner, pay less interest and save money in the long run.
  • If you have a hard time staying motivated when faced with a big long-term goal, you should probably attack your debt using the snowball method so you can boost your confidence in your ability to succeed.
  • Sometimes, an approach that combines the avalanche and snowball methods is best. In that case, you start with the snowball method so you can quickly pay off a couple of cards and gain some confidence that you can successfully retire the rest of your debts. At that point, you switch to the avalanche method and focus all of your efforts on the highest rate credit card so you can start saving on interest.

Now that you understand the difference between the avalanche and snowball methods of paying off debts, good luck in attacking yours. If you’re an Alliant member, don’t forget that we offer resources to help you set up a plan and stay on track in digging yourself out of debt. Alliant Loan Servicing representatives can help you find solutions to fit your situation, and you can also take advantage of the services of GreenPath Debt Solutions, both at no cost to you.

Sign up for our newsletter

Get even more personal finance info, tips and tricks delivered right to your inbox each month.