Snowball or Avalanche Methods for Paying Off Debt?

Snowball Method

In the personal finance arena, you have two different schools of thought related to paying off debt. Many are familiar with Dave Ramsey’s Baby Steps, in particular Baby Step 2 which is to pay off all debt not including your mortgage. Additionally, Dave discusses paying off your debts from lowest to highest dollar amounts…in that order. Essentially, the goal is to build confidence by achieving small successes by paying each one off by ‘snowballing’ payments that are paid off into other debts.

Avalanche Method

Conversely, hardcore “FI’ers” or members of the FIRE movement disagree. These folks believe that tackling the debts with high interest rates first is the best route. They call this the Avalanche Method. Their argument pertains to the amount of interest paid on those high debts over time. The quicker you can pay them off, the more money you save in interest, even if that might take longer to pay them in full.

So which path works the best?

It certainly depends on your debt, income, and overall financial situation. Ultimately, regardless of the method, the outcome of financial independence by being debt free is the GOAL. Progress is progress as long as you remain aggressive with removing debt.

We used both methods

When we started our debt free journey, one of the first things we paid off was a variable and high interest private student loan that I had been paying on for well OVER A DECADE. It wasn’t our lowest balance owed at the time, but it had an interest rate of over 9%. Toxic. Yes. It started as high as 17% once upon a time. We both agreed that it NEEDED to go first.

No matter if you snowball or avalanche your debt, KEEP AT IT.