Debt Snowball vs. Debt Avalanche: Which is the BEST Way to Pay Off Debt? 

I used a combination of the two methods. When I graduated college I had several student loans. The first thing I did was pay off the smaller ones (

The avalanche method is best for those who are mathematically minded and financially oriented. The big asterix to this is those who are in consumer debt are typically (not always) not financially minded. The avalanche method immediately fails if a person gives up tackling their largest debt first - they need a victory as soon as possible. Even though mathematically avalanche is better, I believe snowball is more effective in the end when accounting for the human will.

time stamp of 17:50 when they finally start talking about the subject, so skip to that point if you dont want to sit and hear about the different type of debt, wasted so much time to get to the point of the subject.

I've always used the snowball method when I had debts I wanted to get rid of, primarily student loans and credit cards. Even thought my MBA mind says payoff the higher interest rate debt first, the problem is you don't see the results immediately, so it is easy to get sidetracked and frustrated. However, when you knock out a smaller debt, you see that it is gone and then it is easier to focus on the next larger one.

Another benefit of the snowball is that it frees up some cash flow for other things if needed. It’s more flexible.

The main problem I see with this illustration is that if you are really going to attempt the debt snowball, the goal should be to pay those debts off FAST! The main reason the avalanche looks so much better here is that the payoff is spread out over 5 years. If you sell stuff, get extra jobs and throw everything you can at the debt, the goal should be to pay it off in 1-2 years. Plus, a majority of people won’t have a debt at that 29.99% interest. They assumed here that the higher the balance, the higher the interest rate. More than likely the higher balance debts are cars and student loans while credit cards tend to be the lower balances (and high interest) that you are paying off early on anyway. The math gets much much closer when those things change. And at that point, the emotional wins of the snowball outweighs the much smaller financial savings

Avalanche is how I paid off my student loans 4 years earlier than estimated. Now I'm helping my spouse.

I'm always shocked at the misuse of credit cards and overspending on cars. These two things alone could mean the difference between ~broke @60 & millionaire.

To be clear, the debt snowball is not just about behavior. It is also about freeing up income to be able to add to the debt payment. If you were putting all your money in the highest interest-rate, but it is also a high level of repayment that is owed, it does not free up any income to be able to pay extra on debts.

What is left out with the Debt Snowball is the ability for refinancing/ consolidating your debt. You really have to watch your items by a case by case basis and put a plan together. Just have a plan!! And stick to it. Know when you plan to be out debt!!!

FTE Daniel has raised the quality of this show so much. Whatever yall are paying him, it's not enough.

I've primarily used the snowball, but made an exception for 3 accounts that were significantly higher interest to the top. That worked for me as the snowball kept me motivated but the exception I made at the beginning used my dollar for effectively

I like what Dave says if debt was a math problem you wouldn’t be in debt in the first place :)

I love the outro to this vid. It’s exactly what I plan on doing - coming to y’all for my financial planning needs when I reach the phase to need somebody 👏

Cash Flow index is statistically the fastest taking out the human emotional impact. Balance/Payment, calculate that for all debt and put more money towards the lowest cash flow index first.

I went with the “debt nope” approach and it’s worked for my entire life.

New cars are horrible "investments." Taking a loan on any vehicle is a stupid idea too. Set aside money each month for 1-2 years and you'll have enough to buy a used car. Pretty simple.

Love your content. You guys do the math and that is great. Two things though, this obviously a cherry picked scenario that benefits your method vs debt snowball, and two Dave would tell people to sell stuff, get a second and third job, get intense and pay all this off in less than a year and be done with it. In paying debt off quickly the interest rate matters much less.

Thank you for the great advice and guidance.

I'm currently in a situation where I have 3 small debts and 3 large debts. My plan is to snowball the small ones and avalanche the large ones.

Avalanche all the way. If you cant get get over the mental block of paying a bigger loan at a higher interest rate, think of your loans as single dollar loans at their respective interest rates. ie, a 30k loan at 5% is 30k $1 loans each at 5%. Extend the army of dollar bills concept to paying off debt.

additional consideration to method should also be paid to budget, and minimum payment requirement. It may be more beneficial to pay off the debt that has a low balance but high monthly payment to free up as much cash as possible to maximize payoffs moving forward.

Can we follow this episode up with one on cash managment plans? What they are, how they work, and the benefits of using one.

Great video guys. Thank you!

Wow! Thanks for sharing this!

You keep inspiring people to achieve independence. Thanks.

If you follow Dave Ramsey and the baby steps; use the debt snowball; make the average household income in the USA; the debt total in the example should've been paid off in 1 year or less.

Good information. i did the avalanche method personally and it worked.

33k in student loans......I started paying em back today I'm try do it in a year wish me luck

Can’t wait!

I have no debt and I'm 24 minutes into a video about paying off debt. Great job, guys! 😆

Most employers don't care where your degree is from (and many jobs don't even require a degree for that matter). A great way to save on college is doing 2 years at your local community college, then going to a local state run university for the last two years. Using grants, scholarships, & working full time while attending is a great way to finance your education too. This way you're not graduating college with a load of debt hanging over your head.

If you are doing The Baby Steps, the Debt Snowball is crucial. Since Dave has you only $1000 in savings, you want to quickly lower your minimum payment totals so if an emergency happens, you have more free cash when you temporarily go back to minimum payments only to cover that emergency.

Today is the first time I heard of the debt snowball & the debt avalanche methods. I just realized I used the avalanche method for the past few months without knowing there’s a name for it & got rid of my $30K+ debt recently. It really isn’t rocket science, it makes more sense to me to rid of it based on interest rates, mathematically.

You both are very knowledgeable as well as professional and also a joy to listen to. My own financial advisor, if he is as smart as you two seem to be, does not share this valuable info.

Y'all are great! Most of my financial foundation has been built with advice from this channel.

Was there any consideration for the minimum balances on each credit card to be transferred as extra payment (on top of the $200/mo) to the other debts once a card was paid off? That’s a true snowball method, but I didn’t hear that mentioned. That could’ve been applied to Sam and Abigail and would be interesting to see the results (and would bring another conversation up of investing vs paying down debt) to show the power of what that saved money can do as it is freed up.

Median is half above and half below. The average student loan number is not the same as median. Just a point of clarification

Track your net worth and focus on that. The total assets and liabilities is what matters, not how many debts or accounts you have. Avalanche all the way

The example was extreme. If a more realistic example was used. The difference between the two methods would have would have be a lot less.

I took a 0% 5 year loan for a car almost 10 years ago (still drive it). We bought my wife a Prius in cash a couple years ago when rates were 2.9%. We would have been better off with a loan and investing the cash, but oh well.

My son is going to lineman school. Debt free 2 year associate degree. In 4 years he will be making 6 figures. Raise them in work boots and they will know how to work.

Ok, the snowball vs avalanche example was perfectly formulated to benefit the avalanche method. The only reason to do the debt snowball is if you need the morale boost of paying some low balance items off. The avalanche is obviously going to win mathematically. It's hard to mathematically account for the psychological aspect (if any).

Bo misspoke, but, it is common for people to confuse average and median. When talking about the class of 2019 having average student loan debt of $29k. He said “…half …have more than $29k…”. I completely agree with knowing the ROI. I actually believe the 1st year income is too high.

Hi gentlemen, in a prior video you talked about not spending more than 25% of your monthly income on housing. Does that 25% include utilities, cable/internet, etc?

My personal opinion is to first educate yourself on both methods. Then list your debt using the debt snowball method and then adjust the list using common sense. If you have a smaller debt at 0% and a larger one at 29.99% common Sense would tell you to swap those.

Debt robs you of building wealth. The two worst forms of debt are car loans and credit cards, if you go through life leveraging these types of debt, you will have an extremely hard time building wealth for retirement.

That average student loan debt is mean, not median. So it doesn't mean that half had more, it's much more likely that 9 had none and the 10th was a doctor with $300k in debt.

When you mentioned a person of age 30 should have X amount of money in their retirement, is that how much initial net transaction/original money put in, or after investment returns?

Avalanche....but my higher interest rates have always been on smaller loans.

If the numbers are close, then you certainly should pay on a higher interest-rate. I don’t think that is the argument though. In fact, Dave himself has said that if they are close, then go ahead and pay the high interest rate. But what about if the 19% has a $50,000 balance and the 7% has a $10,000 balance. Are you saying in that case study that you should not go ahead and pay off the 7% balance with only $10,000 in it?

Why wouldn't these fictional people transfer balances to a lower APR credit card? Secondly, paying $200 extra is honestly pretty sad. If you really want to escape debt quickly, you should be living on a monthly budget and be working two or three jobs at once. Paying an extra $1,000/month frees both of them from credit card debt in less than 2 years.

Don't forget that behavioural debt snowballers almost always increase their income when they get excited about paying off debt. It's never so straightforward!

There's a third option. Cash flow optimized. Pay off the one that frees up the most $100s of dollars in your budget for the fewest $1,000s paid off.

Challenge: Could you consider a mini-series targeted toward the young ones? Perhaps commission early-years teachers to help prepare, construct and/or even deliver the content with you guys? Just a thought... Cheers.

I hear "america has a debt problem"-- and we do-- perhaps a "comparison" show with other industrialized countries to show how we match up? (and, not to put TOO much on your plate, but maybe touch on why/ social/ attitudinal trends/ worldview, etc. sorry-- this is grad thesis territory. and yet, im curious)

I have a very small loan of $3200 left but I still think I’m going to start knocking my house off because I’m stuck in a high interest rate and it make me sick to my stomach when I hand them $800 and like $200 something comes off the principle I’m paying like almost a weeks worth of work for interest right now even min payment my other loan will be paid off within a year so I think I’m gonna start dumping any money I can on the mortgage it’s a bigger fish to fry and will spring load me into the future

What I most dislike about the Debt Snowball approach & the Ramsey Solutions promotion of it is its heavy reliance on emotional immaturity. So, let’s say you done mucked yourself up by getting into bucketloads of debt so you have to change your ways to get out of debt. But, for goodness sakes, don’t think of using some basic arithmetic to figure out how to fix yourself because you didn’t do that before. As an adult, you’re supposed to be more mature & knowledgeable than a fifth grader, & the Debt Snowball to me screams ‘Me dumb. Math hard. Percentages hard to say, also hard to understand. Thinking hard. Brain get hurt easy. Me use Snowball because Me can pick up a snowball. Me can’t pick up an Avalanche.’ 🤪

I've never had a car for under 6 years, crazy people waste so much on cars

Don't take on debt for things you can pay cash for today. Don't take on debt for needs without a viable plan to pay it off ahead of schedule.

I enjoy listening to the blog but find the videos frustrating. Please ditch the TV screen and center on the two hosts. I want to see both the person speaking and the person reacting. If you cut away occasionally to only one person, please include his hand movements in the shot because these guys are very expressive with their hands. I prefer a single camera that shows both hosts and their gestures at all times. Thanks!

The method you choose can have multiple factors. 1) It can be reliant on how far you are away from Margin. If you have slim to no Margin starting with the snowball can be good. Using the snowball can be great for taking out a bunch of those little payments that put you in a hole monthly. 2). There is nothing that says you can’t switch to Avalanche once you’ve created some breathing room. 3). There are times when certain debts need to take priority. For instance, I have made significant progress and built margin in my monthly budget. I was paying an 8.99% debt and doing minimums on everything else. My job may force a relocation. I have 2 smaller 401k. loans at lower interest rate. I am putting those at the head of the line to allow employment flexibility. 4) In addition to just being generally dumb to borrow in general, in my example I’m losing the market growth on my 401k loan even though “I’m paying myself the interest.”

Aaron Sachs Associates

I made some mistakes in my youth, 2018 was my breaking point where I had to make a change as I had almost not enough to eat monthly. Since then I have been living frugally, agressively paying off debts (avalanche and paying as much as I can only buying food, no leisure spending at all), 2022 next year I will finally become completely debt free (don't even have a mortgage). Eventhough these years have been rough it's been a great learning experience, I have also started longterm saving and have a completely different outlook on life and spending in general.

...to clarify below comment: Are, say, Scandinavian countries NOT (on average) in debt? Canadians? How about the Asians? are they frugal beyond compare? Why/ why not? Contrarily, consider (globally) those so chronically poor, they never BEGAN to question this "401k" or "margin" or "Roth conversions" of which you speak; no, they just need to maybe eat today, if perchance.

26k in debt? student loans bb

I have 3 accounts with 29% 😢

1. destroy your credit cards 2. borrow from 401(k) or a low-rate source to pay off your credit cards 3. avalanche

Using Credit cards is playing with snakes. Stating that credit cards are apart of a successful financial plan seems like a bold statement considering the stats you’ve reviewed. They’re bad. Not ok. Period. Obviously, half of Americans don’t use them as they should be used.

If it was a math problem, you wouldn't be in debt in the first place.

things i can't pay all cash means i cannot afford them, except for home

OK, debt is a tool. Here are two scenarios and why I'm in the "B" camp A: Buy a house for $500k. Take a $350k mortgage at 3% and pay it off as fast as possible. B. Buy a house for $500k. Take a $350k mortgage at 3% and pay it off as slowly as possible. Take a tax deduction on the interest at 30% tax rate and pay an effective 2.1%...Invest as much as possible tax-deferred...in my case about $30k a year...save an additional $9k on taxes each year. Allow the money to grow at 7-8% tax-deferred. Seriously, I'll never pay off my mortgage but should retire with IRAs in excess of $2 million. By the time I retire, my mortgage will still be down to about 20% of the value of the house. I immediately downsize, take the long-term capital gain exemption on my primary residence AND THEN don't have mortgage debt. Same for credit cards. As long as my credit score is 800+, and they keep giving me "0% until July 2022" or whatever, I'm not paying them. I'll just put the money in a bank account and wait until the month before the teaser rate expires. It is math. Plain and simple. But the whole thing that "debit is OK" or "debt is evil" isn't true. Debt is a tool. Are you a surgeon with a scalpel or someone with a chainsaw doing massacres in Texas? Now back to the method of payoff for those that need it. First, refinance or recapitalize your debt to better rates or longer terms. Sometimes you have a year left on a loan that has high payments and a high rate. Go ahead and refi that into something that goes out a few more years at a lower rate. Rinse and repeat. Then pay off the ones that won't negotiate with you first. You don't need to do business with people/debt companies who won't negotiate with you.

You’re doing the snowball calculation wrong.