The two methods
Both start identically: pay the minimum on every debt, then direct every spare dollar at one target. When it clears, its minimum payment rolls into the attack on the next one — the payment “snowballs” either way. The only difference is which debt you target.
- Avalanche: target the highest interest rate first. Mathematically optimal — it always costs the least in total interest, and never takes longer.
- Snowball: target the smallest balance first. Costs a little more, but produces a visible win much sooner.
The same debts, both methods
Three debts, $12,400 total, with $300 a month available above the minimums:
| Debt | Balance | Rate | Minimum |
|---|---|---|---|
| Store card | $900 | 9.9% | $30 |
| Personal loan | $4,000 | 12.5% | $120 |
| Credit card | $7,500 | 22.9% | $190 |
Result of simulating both, month by month
- Avalanche (credit card → personal loan → store card): debt-free in 24 months, total interest $2,268. First debt cleared in month 19.
- Snowball (store card → personal loan → credit card): debt-free in 24 months, total interest $2,825. First debt cleared in month 3.
Avalanche saves $557 — about 20% of the interest, and 4.5% of the total amount repaid. Snowball delivers the first cleared debt 16 months earlier.
Method: interest accrues monthly at rate/12 on the outstanding balance, minimums are paid on everything, the $300 plus any freed-up minimums goes entirely to the target debt, and the target is re-chosen each month. No new borrowing.
That is the whole trade, quantified: roughly $557 for sixteen months of visible progress. Whether that is a good deal depends on something no spreadsheet knows — whether you would actually keep going without the early win.
When the gap is big enough to care about
The avalanche advantage grows when:
- Rates are far apart. A 24% card next to a 4% student loan makes order matter a lot. Three debts all near 12% make it nearly irrelevant.
- The high-rate debt is also large. Interest is charged on balance, so a big expensive debt dominates the total.
- The payoff period is long. Over five years the gap compounds; over twelve months it is often lunch money.
Run your own numbers before choosing on principle. If the difference turns out to be $60, take the method you will finish. If it is $4,000, the early-win argument gets much weaker.
What the research says about sticking with it
There is real academic work here, not just opinion. Studies of consumer repayment behaviour — including Gal & McShane (2012) on closing accounts and Brown & Lahey (2015) on “small victories” — find that people are more likely to persist with debt repayment when they clear whole accounts early, even when that ordering is not the cheapest. The effect is behavioural, and it is measurable.
Which means the honest framing is not “snowball is irrational”. It is: snowball buys motivation at a price you can calculate. Sometimes that price is worth paying; sometimes it obviously is not.
The hybrid most people should consider
- Clear anything under about one month's spare payment first, whatever its rate — one or two quick wins for a trivial cost.
- Then switch to strict avalanche for the rest, where the money is.
- Handle promotional 0% balances separately: they are cheap now and expensive on a known date. Plan to clear them before the promotional period ends, not after.
The levers that beat both methods
Payoff order is a second-order decision. These are first-order:
- Increase the amount above minimums. Doubling the extra payment beats any ordering choice by a wide margin.
- Reduce the rate. Ask for a lower APR, or move a balance to a genuinely cheaper product — then keep the old payment amount rather than the new lower minimum.
- Stop adding to the balance. A debt you keep using does not amortise.
- Keep every minimum paid on time. Late fees and penalty rates can wipe out a year of careful ordering, and in countries with consumer credit files a missed payment lingers for years.
You can see the cost of any single debt with the loan calculator — enter the balance, rate and the payment you intend to make.
Sources and further reading
Primary sources are preferred: regulators, central banks, statistical agencies, tax authorities, index providers and original research. Links open on the publisher's own site; FinSage has no commercial relationship with any of them.
- U.S. Consumer Financial Protection Bureau — paying off multiple credit cards.
- Gal, D. & McShane, B. B. (2012), “Can Small Victories Help Win the War? Evidence from Consumer Debt Management”, Journal of Marketing Research 49(4). Publisher page.
- Brown, A. L. & Lahey, J. N. (2015), “Small Victories: Creating Intrinsic Motivation in Task Completion and Debt Repayment”, Journal of Marketing Research 52(6). Publisher page.