The average debt per U.S. household in 2024 was over $100,000. Families generally have debt related to student loans, credit card balances, mortgages, and automobile loans.

A family has several options and strategies to pay their outstanding debt obligations. Two of the most popular strategies are the “debt avalanche” and “debt snowball” methods.

In general, one method focuses on minimizing the total amount of interest expense, while the other method focuses on keeping you motivated.

What is the Debt Avalanche Method?

The debt avalanche method focuses on eliminating debts with the highest interest rates. Eliminating these debts first will save you interest in the long run.

To implement the method, individuals must list their debts, balances owed, and respective interest rates. The debtor makes the minimum payment on each debt and then uses any remaining cash available to pay down the principal balance on the debt with the highest interest rate. Once the individual pays off the debt with the highest interest rate, move on to the second highest interest rate.  

Example Calculation

Suppose John Doe has two credit cards with the following balances and annual percentage rate (APR).

  • Credit Card A: Balance Owed of $3,000 with Interest Rate of 15%
  • Credit Card B: Balance Owed of $5,000 with Interest Rate of 18%

For the current month, the minimum payment for Card A is $38, and Card B is $75. John has $500 of free cash available to pay his credit cards. John should make the minimum payment for each card, which will use $113 cash (i.e., $38 + $75). John now has $387 of cash remaining.

John should use the remaining $387 to pay the principal balance owed on Credit Card B because it has a higher interest rate. By paying down the higher interest rate balance first, he will save interest in total throughout paying these debts.  

What is the Debt Snowball Method?

The objective of the debt snowball method is to keep you motivated when paying your debts by trying to close out balances as soon as possible.

The snowball method prioritizes paying off the smallest balance owed in its entirety before moving on to paying other debts. The individual prioritizes the smallest balance owed, even if the debt has a lower interest rate than other debts.

To implement the method, individuals must list their debts, balances owed, and respective interest rates. The debtor makes the minimum payment on each debt and then uses any remaining cash available to pay down the principal balance on the debt with the smallest outstanding balance. The individual does not focus on the balance with the highest interest rate.  

Once the individual pays off the first debt, move on to the next smallest outstanding balance owed.

Example Calculation

Suppose John Doe has two credit cards with the following balances and applicable percentage rate (APR).

  • Credit Card A: Balance Owed of $3,000 with Interest Rate of 15%
  • Credit Card B: Balance Owed of $5,000 with Interest Rate of 18%

For the current month, the minimum payment for Card A is $38, and Card B is $75. John has $500 of free cash available to pay his credit cards. John should make the minimum payment for each card, which will use $113 cash (i.e., $38 + $75). John now has $387 of cash remaining.

John should use the remaining $387 to pay the principal balance owed on Credit Card A first because it has a smaller balance owed. Even though Credit Card A has a lower interest rate than Card B, the snowball method focuses on those smaller balances first, regardless of interest rate.

By focusing on the smaller balance first, John will achieve a greater mental victory by paying off a debt sooner. This method will not save John interest expense; however, it will keep him motivated to focus on paying down these liabilities.

Which Method Should You Choose?

Deciding which method to use is a personal choice. Many individuals appreciate the math-based approach to saving interest expense by using the Avalanche Method. However, others are less motivated by the interest expense savings and find greater relief and motivation by paying off a debt.