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Debt Payoff Strategies: Avalanche vs Snowball - what does it all mean?

Understanding the difference between Avalanche and Snowball credit card payoff strategies

February 6, 2024

Credit card debt is a reality for many Americans - it can be a necessity for large purchases or come in handy for an emergency situation, but high interest rates can also make long term financial planning much more difficult. If you would like to learn some great ways to pay off debt, we’re here to help! There is no one-size-fits-all method to becoming debt free, but there are multiple repayment methods that can help make that goal happen. Two methods we utilize at Tally to help our members pay off their credit card debt are the “Avalanche Method” and the “Snowball Method”.

The Avalanche Method

The “Avalanche Method” is a popular way to pay off debt as it saves the most money in interest over the long-term. With this method you prioritize putting any additional income toward credit card debt with the highest interest rate first, while continuing to make minimum payments toward your other credit cards. 

For example, let’s say someone has three credit cards, with APRs of 28%, 24%, and 18%. This person reviews their monthly budget and determines they have an additional $250 to put toward credit card debt this month. (In this scenario, the minimums on each of their cards are $25.) Using the avalanche method, this person pays the minimums on all three cards (adding up to $75), and then uses the remaining $175 they have to pay toward credit card debt this month and puts it toward the 28% ARR card.

Using the avalanche method, once they pay off the 28% APR credit card, they move on to the 24% APR card (the next highest APR), and so on, until their credit card debt is fully paid off. This method ignores the balances of the credit card, and simply focuses on the highest interest rate, while maintaining minimum payments. 

The Snowball Method

Another method that can help those with credit card debt successfully pay it off is the “Snowball Method”. This method is not quite as efficient from a mathematical standpoint, but can be more motivating for some people! The snowball method prioritizes credit card balances, and pays off credit cards from the smallest balances to largest, while paying minimums. This can help see quicker results, as a person will build upon the small victory of fully paying off a credit card as quickly as possible, regardless of that particular credit card’s APR. We have seen this build confidence that’s needed to get rid of debt overall.

Here is how the snowball method works: Say you have those same three credit cards. Keeping in mind the snowball method ignores APRs, we instead look at the credit card’s balances. Card one has a balance of $2,000, card two has a balance of $2,500, and card three has a $4,000 balance. Using the snowball method you will use your remaining budget to pay minimums on all three cards, but any leftover will go first to card one (with the $2k balance), then card two, then card three.

Which should you choose?

If you are looking for the mathematically best method to pay off debt as quickly as possible and not as concerned about motivation to continue, the avalanche method may be the right choice for you. This strategy will always save you the most on interest, and may pay off your debt faster overall, as less debt may accrue over time. However, if your lowest APR card is also your highest balance, it may take you a long time to pay off your first card… so you will need to find ways to keep yourself motivated to keep your debt payoff going! 

On the other hand, the snowball method’s quick, small wins help motivate you as you pay off your cards! If you think this is something that can help you maintain your progress, it may be a better approach for you. And be sure to take a look at the balances and APRs on each of your cards before choosing either of these methods - you may find that your lowest APR card also holds your lowest balance- the snowvalanche method ;)

Both the Avalanche and Snowball methods can both help you achieve your financial goals. Whichever method you choose, prioritizing paying off your credit card debt is an important achievement, and good for both your financial and mental health. What is more important than the method you choose is sticking with it - staying committed to your payoff method is the first step to freedom from credit card debt and the next phase of your financial future.