Will a Snowball or an Avalanche Help You the Most?

One of the most common questions I (Laura) get is…

What is the best way to get rid of credit-card debt?

In fact, it’s so common that just the other week my managing editor, Chris, asked me for the best ways to erase his debt.

It’s no wonder people are worried. According to NerdWallet, the average credit-card debt for U.S. households is $15,654. The average interest rate of credit-card debt is around 12.5%. That means that Americans are paying nearly $2,000 a year in interest.

For those millions of Americans, credit-card debt can damage mental health… leading to stress, anxiety, or even depression.

So today, I want to help you take control of your debt so your health (and your wallet) doesn’t suffer…

Here are two main strategies to pay down credit-card debt: debt snowball and debt avalanche.

Debt Snowball

With this strategy, you pay off the cards with the lowest balances first. Once a card is paid, you then roll that payment into the next card and build momentum – like rolling snow into a snowball. These small debt “victories” will encourage you to keep at it, and make your debt feel more manageable.

Let’s say you have three credit cards, two with $35 minimum payments, and one with a $55 minimum. You have $200 to split between paying them off…

Debt APR Minimum
Card A $1,000 14% $35
Card B $1,500 17% $35
Card C $3,000 21% $55

The card with the smallest balance is Card A. So that’s the card you’d want to put most of your money toward paying off. Here’s what those payments look like in our example:

Debt APR Payment
Card A $1,000 14% $110
Card B $1,500 17% $35
Card C $3,000 21% $55

Assuming your payments stayed the same, you’d have Card A paid off in about 10 months. You’d then roll that $110 payment into Card B’s $35, making your payment “snowball” bigger. Once Card B was paid, you’d roll that $145 into Card C’s $55. Here’s how this strategy plays out using our example and NerdWallet’s handy debt snowball and avalanche calculator

Debt APR Interest Saved Paid Off
Card A $1,000 14% $160 December 2018
Card B $1,500 17% $519 October 2019
Card C $3,000 21% $5,283 March 2021

If you had just made the minimum payments each month, you wouldn’t be debt free until 2033. In this scenario, the snowball method saves you about 12 years and $5,964 in interest.

An important thing to keep in mind is that you need to meet the minimum payments on all your credit cards. If you don’t, you’ll get hit with fees that make it harder to pay off your debt.

Debt Avalanche

This strategy (also called “debt stacking”) focuses on interest rates, rather than balances. So your goal is to pay off the cards with the highest interest rates first. Mathematically, this strategy usually saves you the most money on interest and often takes less time than the debt snowball. The downside is that your debt victories – like paying off your first card – may not be as immediate.

Using the same calculator above, here’s the order you’d pay your cards using the debt avalanche, as well as the interest saved and pay-off dates…

Debt APR Interest Saved Paid Off
Card C $3,000 21% $5,925 August 2020
Card B $1,500 17% $234 March 2021
Card A $1,000 14% $0 January 2021

Overall, your payment process would be the same. As a card is paid off, you roll that payment into the card with the next highest interest rate.

How do you know which method is best for you?

Again, mathematically, the debt-avalanche strategy will usually save you the most time and money because you won’t pay as much in interest… But it’s worth looking at both before committing to a plan.

If you’re interested in learning more, check out NerdWallet’s write-up on both the debt snowball and debt-avalanche strategies. (Both pages contain the debt calculator used above.)

I asked Chris which of the two methods he chose. Chris explained he’s using the debt-avalanche method because, as he told me, “I’ll take good math over an emotional payoff any day.”

Have a great week,

Laura Bente & Amanda Cuocci
March 4, 2018