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Credit Card Debt Snowball Versus Debt Avalanche Payment Models: Which is Better?
Americans are doing a better job paying down credit card debt – but they could be doing better.
“Americans began 2020 owing more than $1 trillion in credit card debt after a $76.7 billion net increase during 2019,” said Joseph Gibbons, owner of Gibbins Solutions, a financial advisory firm in Midlothian, Tex.
“Consumers quickly changed course, however, posting the biggest first-quarter credit card debt paydown ever, at $60 billion.”
Needless to say, being in significant credit card debt can feel suffocating and leads many people to bankruptcy. “This threat needs to end,” Gibbons said. “People should only be making purchases on their credit cards that they know they can pay off at the end of the month.”
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If that’s not the case, and credit card debt is mounting, there are two proven ways of chopping away at all that plastic debt – the debt snowball method and the debt avalanche method.
Here’s a snapshot of each card debt repayment model:
Debt Snowball Method
The debt snowball method involves making minimum payments on all debt. “Then, you pay off the smallest debts first to get them out of the way before moving on to bigger ones,” Gibbons said.
For example, let’s say you have these three debts:
$10,000 auto loan – with a $150 payment
$4,000 credit card. -with a $125 payment
$1,000 credit card – with a $75 payment
“With the debt snowball method, you’ll focus on paying off the $1,000 credit card first because it’s the smallest balance,” said John Davis, founder of ScoreSense, a Dallas, Tx.-based credit score services company. “After making the minimum payments on all three debts, put any extra money you have toward the $1,000 credit card. For example, if you make the regular $75 payment plus an extra $125 every month, that credit card principal balance will be paid off in five months.
The debt avalanche method involves making minimum payments on all debt, then using any remaining money to pay off the debt with the highest interest rate. “The key difference is whether you’re choosing to pay off the highest interest to the lowest, or the smallest balance to the highest,” Davis noted.
“Adopting the debt avalanche method means you will make the minimum payment on each account, and then use any funds left over to pay down the account with the highest interest rate,” Davis said. “Once you clear the highest interest debt, you move to the account with the next-highest interest rate.”
Which credit card repayment method works better? Financial experts say each payment scenario is unique – and it’s up to you to figure out a plan that meets your unique needs.
“The bottom line is it comes down to your personal preference,” said Molly Ford-Coates, founder at Ford Financial Management. “If you’re more motivated as you see your debts disappear? Then opt for the debt snowball method. Or, are you more motivated as you see your high interest debts diminish and disappear? Then opt for the debt avalanche method.”
“If you do the math, ultimately, the difference between the two methods comes down to a few months of time between paying off all your debts,” Ford-Coates said.
If you’re on the fence, Ford-Coates recommends getting creative and compare the two card repayment methods head-to-head.
“A great resource is Powerpay.org,” she said. “On this site, you input all the information about all your debts. You can choose between the debt snowball and avalanche methods and get a printable spreadsheet with your payments and debt payoff time.”
A key difference between the debt snowball and debt avalanche dept repayment models is the debt snowball model “doesn’t care about your interest rates,” according to Steffa Mantilla, a certified financial education instructor (CFEI) and founder of the personal finance website Money Tamer. “It’s based off of behavior and motivation rather than math. The debt avalanche method will have you pay the least amount in
Mantilla, who dug herself out of $80,000 in household debt, still recommends using the debt snowball method.
“It uses behavioral science on motivation that’s baked into its design,” she said. “While it makes the most mathematical sense to pay the least in interest, you getting into debt wasn’t a math problem, it was behavioral.”
By paying off the smallest debts first, you’ll get quick and easy wins that will propel you forward. “You’ll be excited that you’re seeing progress and stay motivated to work towards the larger debts,” she said. “But if you use the debt avalanche method, if your debt with the lowest interest rate is also your largest, you’ll go a long time before seeing a win.”
According to Mantilla, studies  have shown that people who use the debt snowball method have a higher success rate than those who use the debt avalanche method.
The Takeaway on Debt Snowball Versus Debt Avalanche
As the experts note, choosing between the debt avalanche and debt snowball credit card repayment models depends on your own household spending behaviors, your card debt levels, and your personal preference.
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“The best option is usually whichever plan you can stick to,” said Jacob Dayan Esq, CEO and co-founder of Community Tax in Chicago Il. “If you don’t need motivation, pick the avalanche method, but if you do, go with the snowball method.”
“Either way, it is important to remember not to give up when you get discouraged.”
Brian O'Connell has been a finance writer at TheStreet, TheBalance, LendingTree, CBS, CNBC, WSJ, US News and others, where he shares his expertise in personal finance, credit and debt. A published author and former trader, his byline has appeared in dozens of top-tier national publications.