How to Pay Off Debt: Avalanche, Snowball and What Actually Helps
Debt is easier to deal with once it is written down and has a plan attached. This guide covers how to choose which debt to attack first, why minimum payments are so slow, and how to keep the balance from coming back.
Start with a list
Write down every debt with its balance, interest rate and minimum payment: credit cards, lines of credit, car loans, student loans and money owed on store financing. Add up the minimums. This is the amount you must pay every month, and anything beyond it is what will speed things up.
Why minimum payments take so long
On a high-rate debt, much of each payment is interest. Take a $5,000 card at 20% and assume a fixed payment with no new purchases. Paying $150 a month takes 4 years and 2 months and costs about $2,359 in interest. Paying $250 a month takes 2 years and 1 month and costs about $1,133. Real card minimums usually fall as the balance falls, which can make the minimum-only path even longer.
Avalanche or snowball
Both methods pay the minimum on everything and put all the extra money on one debt. When that debt is gone, its whole payment moves to the next.
- Avalanche: highest interest rate first. It costs the least interest.
- Snowball: smallest balance first. You clear whole debts sooner, which many people find motivating, usually at a somewhat higher total cost.
The best method is the one you will keep doing. If the two are close for your debts, choose whichever feels easier to stick to.
Find extra money
- Build a realistic budget from your real transactions.
- Cancel what you do not use. Subscriptions are an easy first stop.
- Put windfalls, such as a tax refund or bonus, on the target debt.
- When a debt is paid off, keep paying the same total.
Lower the rate
Ask your lender for a lower rate, particularly if you have paid on time. Consolidating high-rate debt into a lower-rate loan or a balance transfer can help, but read the fees and what happens when a promotional rate ends, and only do it if you will stop adding to the old balances.
Stop it coming back
Keep a small emergency fund while you pay down debt, so a surprise bill does not go back on the card. It can feel slower, but it protects your progress.
If you cannot keep up
If the minimums are already out of reach, contact your lenders early, because many have hardship options. A non-profit credit counselling agency can also go through your options with you, and it is worth doing this before you miss payments.
Try it: Compare both methods on your own debts with the free debt payoff calculator.
This guide is general information for everyday budgeting, not financial, tax or legal advice. Rules, limits and rates change, so check official sources or ask a qualified professional about your own situation.
Published by Budget Dashboard. Questions or corrections? Contact us.