Debt snowball vs avalanche: three households, three different answers

Two ways to roll a payment forward

Both methods start the same way. You list every debt, pay the minimum on all of them each month, and put whatever extra you can afford on top of one target debt. When that debt is cleared, its minimum payment joins the extra and moves on to the next target. The amount aimed at each new target grows as debts disappear, which is where both methods get their momentum.

The only difference is the order:

• The debt snowball targets the smallest balance first, ignoring interest rates.
• The debt avalanche targets the highest interest rate first, ignoring balances.

Because you pay the same total each month under either method, the difference comes down to how much of that money is eaten by interest along the way. The avalanche always minimises it. The question is by how much.

To find out, we ran three households through the same month-by-month simulation that powers our debt snowball and debt avalanche calculators. Interest is added monthly, minimums are paid first, and all the spare money goes to the target debt.

Household 1: the avalanche saves £843

Morgan has three debts:

• a £700 store card at 21.9%, with a minimum payment of £25
• a £2,400 car loan at 6.9%, with a minimum of £85
• a £9,800 credit card at 29.9%, with a minimum of £245

That's £12,900 in total, with £355 of minimum payments. Morgan can pay £250 a month on top.

This is the classic case for the avalanche. The biggest debt is also the most expensive, so every month spent clearing the small debts first leaves almost £10,000 growing at 29.9%. The snowball gets Morgan two quick wins in the first ten months, but those wins cost more than £800.

Notice what the avalanche asks in return: nothing is fully cleared until month 28. For more than two years Morgan pays down a single large balance with no account closed. That is exactly the kind of plan people abandon.

Household 2: the avalanche saves £105

Dan is the default example in our calculators. He has:

• a £3,200 credit card at 24.9%, with a minimum payment of £65
• £5,100 of car finance at 7.9%, with a minimum of £140
• an £8,500 personal loan at 11.9%, with a minimum of £180

That's £16,800 in total, with £385 of minimums, and Dan can add £200 a month.

Here the most expensive debt, the credit card, is also the smallest, so both methods clear it first, in month 15. They only differ over the last two debts. The avalanche goes for the 11.9% loan before the 7.9% car finance. That's the right call, but because the rates are close, it's worth only about £3 a month over the life of the plan.

Household 3: no difference at all

Priya owes:

• £800 on a store card at 29.9%, with a minimum payment of £30
• £2,500 on a credit card at 24.9%, with a minimum of £75
• £6,000 on a personal loan at 11.9%, with a minimum of £190

She has £295 of minimums and £150 extra a month.

For Priya, the smallest balance is also the highest rate, the next smallest is the next highest, and so on. The two orders are identical. Both methods clear the store card in month 5, the credit card in month 16 and the loan in month 25, with £1,581.36 of interest either way.

This is more common than it sounds. Store cards and overdrafts tend to be small and expensive, while personal loans tend to be large and cheap. For many households the snowball and the avalanche are the same plan with different names.

What decides the gap

Look at the three households together and a simple rule appears. The avalanche beats the snowball by a lot only when:

1. A large balance carries the highest rate. Morgan's £9,800 card at 29.9% is the textbook case.
2. The rates are far apart. A gap of 23 percentage points between Morgan's card and car loan matters. Dan's gap of 4 points between loan and car finance barely does.
3. The plan runs for years. The longer an expensive debt waits its turn, the more interest it builds up.

If none of those apply, choose whichever order keeps you going. If all three apply, the avalanche is worth the wait, but you may need a way to stay motivated.

Why the snowball still works

The case for the snowball is psychological, but it has evidence behind it. A study by Gal and McShane, published in the Journal of Marketing Research in 2012, found that people who closed off individual debts made better overall progress than people who spread payments more evenly. Clearing an account is a visible win, and visible wins keep people paying.

A plan that saves £843 but gets abandoned in month 9 saves nothing. A plan that costs £843 more but gets finished in month 30 is a success. Be honest with yourself about which kind of person you are.

Hybrid approaches

You don't have to pick one method and stick to it.

• Quick win, then avalanche. If a tiny balance can be cleared in a month or two, clear it first for the morale boost, then switch to the highest rate. The cost of a short detour is usually small.
• Avalanche with milestones. If you're tackling one big expensive balance, set targets along the way: the first £1,000 off, the halfway point, the month it drops below £5,000. Mark each one.
• Cut the rate, then choose. A 0% balance transfer card can take the most expensive debt out of the equation entirely. Once the high-rate balance is at 0%, the order matters much less. Our balance transfer calculator shows the monthly payment needed to clear it before the offer ends.

Making either method stick

The maths only works if the money actually moves each month. A few habits make that much more likely:

• Automate the extra payment. Set up a standing order to the target debt for the day after payday, so the extra leaves your account before it can be spent.
• Keep the target in one place. Write down the order, the target debt and the date you expect it to clear. When a debt is cleared, move its payment to the next target that same month, so the freed-up money doesn't get absorbed into everyday spending.
• Stop adding to the debts. Remove saved card details from shopping sites and consider asking the lender to lower your credit limit as the balance falls.
• Review every six months. Rates change, promotional offers end and your income may rise. A quick re-run of the calculator shows whether your plan still makes sense.

Before you start

Whichever method you choose, a few things come first:

• Priority debts. Rent or mortgage arrears, council tax, energy bills and court fines have more serious consequences than credit cards. Deal with those before any snowball or avalanche.
• A small emergency fund. Even a few hundred pounds in savings stops an unexpected bill from going straight back onto a card.
• Minimum payments on everything. Missing a minimum payment leads to fees and damages your credit record, which undoes the gains of any method.

Then put your own figures into the snowball and avalanche calculators. They use the same simulation as this guide, so you'll see your own version of these three answers in a couple of minutes.