Many people take sides when it comes to the best way to pay off debt. Which is better, avalanche or debt snowball. At the end, I will give my personal opinion on the method I believe is best, but first, lets explain the differences between the avalanche and the debt snowball.
What Is The Debt Snowball?
In the debt snowball you line up all of your debt from the smallest amount to the largest amount regardless of interest rate. You pay the minimum on every bill except the smallest bill. Pay everything extra on the smallest bill until the smallest bill is paid in full. Then you add that payment that you no longer owe to the next smallest bill. Continue this process until all bills are paid in full.
What is The Avalanche Method?
The Avalanche Method requires you to start with the bill with the highest interest rate. Organize your debts in order from the highest to lowest interest rate. Pay the minimum on the bills with the lower interest rate. Pay extra on the bill with the highest interest rate. Continue the process until all bills are paid in full.
Now many would say that the avalanche method is best because you save the most money on interest payments. That is true, but the debt snowball method gives you the satisfaction of eliminating a debt. Therefore reducing the number of bills that you owe. Giving a since of satisfaction and accomplishment while motivating you to continue until all debts are paid.
The debt avalanche is the best method if saving money is your main priority. But if you lose motivation by skipping payments or sending minimum payments, the process will not be as effective.
And the Winner Is?
Both methods are a win win for anyone trying to get out of debt. For some, instant gratification from eliminating your debt can keep you motivated although it will not save you the most money.
In my opinion, the number of creditors that you owe and the total of each bill should be taken into consideration. For example, lets say you owe three or more bills. One bill is very small and the interest rate is low and you can easily pay it in full with your pay check.
If you lost your job and were unable to pay your bills, a small bill could easily grow from penalties, interest and fees. That’s why I believe the debt snowball is the better choice.
It all boils that to personal preferences and which will keep you motivated. If saving the most money is your primary goal then go for the avalanche method. If staying motivated by seeing your debts eliminated month after month then go for the debt snowball. For assistance managing your debt, try using an app like Credit Karma (not sponsored). Credit Karma helps you to keep track of your bills.