When it comes to paying off credit card debt, the two most common debt repayment methods are the snowball and avalanche method.
These two debt repayment methods influence the way in which you repay your debt. Understanding how both of these debt repayment methods work, and when you should use them, can help you choose the best debt reduction strategy.
In this article, you will learn what the avalanche vs snowball methods are, their pros and cons, how to choose between the two, and when to seek help from a debt relief expert.
Key Takeaways
- The snowball and avalanche methods are two popular debt reduction strategies.
- The right debt repayment method for you depends on your personal circumstances. This includes the balance of each debt and their interest rates.
- A debt consolidation plan can be an effective way to simplify your repayments and save on interest.
What is the Snowball Method?
The snowball method is a common type of debt reduction strategy. It is where you prioritise paying off debts with the lowest balance, in order from lowest to highest. You do this irrespective of the interest rates attached to these debts, meaning you focus only on the value of the debts and nothing else.
How the snowball method works is simple. You continue to make the minimum repayments for each of your existing credit card debts. However, you also make additional contributions toward the debts with the lowest balance. Once you pay off the first lowest-value debt, you then repeat the same with the next lowest-value debt on your list.
What are the Pros and Cons of the Snowball Method?
The main advantage of the snowball method is that it helps you stay motivated while you repay your credit card debts. This is particularly useful for people who need “small victories” to stay on track with their debt repayment obligations. By prioritising credit card debts with the lowest balances, you won’t have to wait very long to clear your first account. This can provide you with the motivational boost that you need to proceed to the next account, and so forth.
The downside to the snowball method is that you will most likely pay more interest in the long run. This is because you are most likely leaving the debts with the highest interest to accrue interest for longer. Thus, your overall debt repayments will be higher.
What is the Avalanche Method?
The avalanche method is another type of debt reduction strategy. Whereas the snowball method is all about repaying your smallest debts first, the avalanche method is about repaying your highest-interest debts first. The idea behind this is to prevent your credit card debts from accruing too much interest, which helps reduce the total amount of interest you owe.
In some cases, the highest-value debts may also have the highest interest rates. But, even if this is not the case for you, you should still focus on repaying your highest-interest debts first, as a high-interest debt is more detrimental to your finances than a high-value debt.
What are the Pros and Cons of the Avalanche Method?
The main advantage of the avalanche method is that it helps you pay less interest, ultimately saving you money. This is because you’re paying off the debts with the most interest first, reducing the amount of time they have to accrue interest.
Another advantage of this debt management strategy is that it helps you pay off your debts faster. Because you’re paying less interest, you’re paying a lower debt amount in total. Thus, you’ll become debt-free sooner.
However, the downside to the avalanche method is that it takes longer to see your hard work pay off. Focusing on highest-interest debts first can take longer to pay off than lower-value debts. As a result, people who need the motivation to stay on track may struggle with the avalanche method.
How to Choose Between the Snowball and Avalanche Method
The right debt repayment strategy for you depends on your unique circumstances and preferences.
Do you want to pay off your debts faster and pay less interest? Then the avalanche method is the way to go. If you have the self-motivation and self-discipline to pay off your highest-interest debts first, then the avalanche method is a great strategy.
Do you struggle to stay motivated to repay your credit card debts? If so, then the snowball method may be better for you. Targeting your lowest-value debts first means that you will see the results of your hard work sooner. Even if you end up paying more money in the long run, adopting the snowball method is better than choosing no approach at all.
At the end of the day, it all comes down to what works best for you. You may even find that you need to switch back-and-forth between strategies from time to time. For example, you may need to switch from the avalanche to the snowball method to reduce your monthly instalments.
What Alternatives Are There to the Snowball and Avalanche Method?
Trying to repay multiple credit card debts can be stressful. And depending on your circumstances, you may find that neither the snowball or avalanche method work for you. This is one of many signs that debt consolidation could be right for you.
For credit card debts, the two most common types of debt consolidation are balance transfer credit cards and unsecured personal loans.
A balance transfer credit card is when you consolidate your existing credit card debts into a new card with a low-interest introductory period. The idea behind this is to pay off the new card before the introductory period is over, reducing the total amount of interest that you repay.
An unsecured personal loan is when you take out a loan and use the loan funds to pay off your existing credit card debts. You then focus on repaying the personal loan in regular monthly instalments until the debt is paid off in full. Ideally, the unsecured personal loan should have a lower interest rate than your existing credit card debts.
When to Consult a Debt Relief Specialist
Knowing which type of credit card debt consolidation is right for you can be tough. Fortunately, that’s where consulting a debt relief specialist can help. They can use their knowledge and insight to help you regain control of your finances.
At Debt Fix, we have nearly two decades of experience helping people escape the credit card debt cycle. Our highly skilled team take the time to understand your circumstances and create a plan tailored to your needs. We’re also a Registered Debt Agreement Administrator & Finance Broker, so you can trust in the advice and support that you receive from us.
To find out if Debt Fix can help you, get started today. It only takes 30 seconds to fill out our simple questionnaire. Doing so will not impact your credit rating. And your answers are 100 percent confidential.
Frequently Asked Questions About Credit Card Debt
Below are answers to commonly asked questions about the snowball vs avalanche method.
Which is Better, the Snowball or the Avalanche Method?
That depends on your unique circumstances and preferences. The snowball method is great for people who need “small victories” to stay motivated while paying off their debts. The avalanche method is the fastest, most cost-effective way to pay off your credit card debts, but it also takes longer to pay off high-value debts.
What is the Fastest Way to Pay Off Credit Card Debt?
Out of the two debt repayment methods, the avalanche method is the fastest. Focusing on high-interest debts first means they have less time to accrue interest. Lowering your overall debt amount means that you pay off your debt quicker.
