YourFinanceCoach

Debt snowball vs avalanche

By YourFinanceCoach EditorialUpdated 3 min read

Short answer

The avalanche — highest interest rate first — always costs less in interest. The snowball — smallest balance first — clears individual debts sooner, which some people find easier to keep up. Run both on your own numbers: if the difference is small, take the one you will finish.

This answers: Should I use the debt snowball or the debt avalanche?

Key takeaways

  • Avalanche always costs less in interest. That is arithmetic, not preference.
  • Snowball clears the first debt sooner, which is a real behavioural advantage for some people.
  • The rolling repayment does most of the work in both — the ordering rule is the smaller effect.
  • If the gap is a couple of hundred dollars, pick the one you will complete.

How we chose these

Both methods are simulated month by month on identical inputs: every debt receives its minimum repayment, and the entire remaining budget goes to one target debt — chosen by interest rate under the avalanche and by balance under the snowball. A cleared debt's repayment rolls into the budget for the next. Minimum repayments are held at the amount entered rather than falling with the balance, and no new spending is added. The comparison shown is total interest and months to clear under each.

The two methods

Both work identically except for one choice: pay the minimum on everything, then put every spare dollar into exactly one debt.

Avalanche targets the highest interest rate first, whatever the balance. When it clears, its repayment rolls to the next-highest rate.

Snowball targets the smallest balance first, whatever the rate. When it clears, its repayment rolls to the next-smallest.

Why avalanche always wins on cost

Every dollar sent to a 22% debt saves 22 cents a year. The same dollar sent to a 7% debt saves 7 cents. Directing money to the highest available rate at every moment is optimal by construction — no other arrangement of the same repayments beats it.

How much it wins by depends on the spread of your rates. A store card at 24% alongside a car loan at 7% produces a wide gap. Three cards all around 20% produce almost none, in which case the methods are near-equivalent and you may as well take the smallest balance for the momentum.

Why snowball sometimes wins in practice

Repayment plans fail when people stop, not when the arithmetic is wrong.

Closing an account entirely — one fewer statement, one fewer minimum, visible progress — feels different from watching a large balance fall slowly. There is evidence people persist longer when they see accounts eliminated. If a full clearance in month four keeps you going and grinding through month eighteen does not, the snowball's extra interest may be cheaper overall.

The honest test: run both, look at the difference in dollars, and ask whether that amount is worth the extra motivation. $200 over three years probably is. $4,000 is a different conversation.

Put your figures into the debt payoff calculator — it runs both on the same inputs and shows the interest and months for each.

What matters more than the choice

How much you put in. Raising the monthly total shortens the payoff more than reordering it does.

The rolling repayment. Holding your total constant as debts clear — rather than letting spending absorb the freed-up minimum — is what accelerates the end. Both methods share this, and it is the real engine.

Not adding new debt. A repayment plan running alongside continued card spending is not a repayment plan.

Where BNPL fits

Buy-now-pay-later balances usually carry no interest, so an interest-rate ordering rule ignores them. Two reasons not to:

  • Late fees are charged as flat amounts, which can represent a very high effective cost on a small balance.
  • The repayment schedule is fixed and short, so BNPL obligations consume budget you need for the plan whether you like it or not.

Treat BNPL commitments as fixed outgoings that reduce your available budget, and stop using it for the duration of the plan.

If neither is affordable

If your combined minimums exceed what you can pay, ordering is not the problem. Ask each provider for hardship assistance before missing a repayment — Australian credit providers have obligations to consider these requests.

Then contact the National Debt Helpline for free financial counselling. It costs nothing, the counsellors are independent of your lenders, and they will tell you whether a hardship arrangement, a debt agreement or something else fits your circumstances — without charging you for the answer.

Run the numbers

Sources

  1. Get debt under controlASIC Moneysmart
  2. Financial counsellingASIC Moneysmart

Educational information only. This page explains how something works in the Australia. It is not financial advice and does not take account of your circumstances. Rates, fees and eligibility change without notice — check the provider’s own terms before you act.

For free, impartial guidance, see Moneysmart (ASIC). To complain about a firm, contact the Australian Financial Complaints Authority.

Related guides