Snowball vs. Avalanche Method: Your Total Cost

You can wind up in debt for so many reasons, but the end result is almost always the same. It’s stressful, you feel terrible, and you want to resolve your financial situation. It’s great you’re reading up on solutions. 

You may know you can afford to pay off your debt, but you're just not sure the best way to go about it. When it comes to DIY debt payoff, you'll come across two popular debt payoff methods: the debt snowball and the debt avalanche.

Both have pros and cons, and the best method for you will depend on your goals and mindset. One could offer extra motivation, but it may come at a real cost. Here's what you need to know about figuring out the total costs of the snowball vs. the avalanche. 

Debt Snowball vs. Debt Avalanche: What Are the Differences?

Both the debt snowball and debt avalanche methods work the same basic way: You make the minimum payment for each of your debts, then choose a single debt to prioritize with extra payments—as much as you can come up with every month. When you’ve wiped out one debt, you roll its payment over to the next debt on your list. And so on.

The difference between the two methods is how you choose which debt to focus on first: 

• Debt snowball. Put all available extra resources to the debt with the lowest balance. The purpose is to score quick wins with a fast payoff so you can stay motivated.

• Debt avalanche. Focus first on paying off the debt with the highest interest rate. The goal is to pay off your most expensive debt first. It could take longer to pay off your first debt, but you should save money in the long run.

Some experts believe the debt snowball method is the smarter approach because of the motivation that comes from quickly eliminating the smaller debts. For example, the avalanche method might start you off with a high-interest debt that also has a high balance. Wiping out that debt would take you a long time. This could make it harder to stay the course and stay laser-focused on making extra payments. 

However, the debt snowball could leave you holding onto the debt with the highest rate for a longer time, paying that rate for many extra months or years. This could add up to a lot of extra interest fees that you could have used to pay off other debts instead.

How Much Is the Total Cost of the Debt Snowball vs. the Debt Avalanche?

If you’re deciding between the debt snowball and debt avalanche, consider the total costs under both repayment programs so you can decide which is right for you.

Just how much extra the debt snowball will cost depends on the types of debt you’re carrying. If all of your debt with the lowest balances also happens to have the highest interest rate, choosing the snowball method won't cost you extra. But if your highest balance is a very expensive loan or credit card, you'll pay a lot more interest overall than you would with the avalanche method.

Let's look at some examples to see how the cost could work out. Say you have $35,000 in debt and your monthly minimum payments total $822. In all these examples, you choose your method and send an extra $250 to a target debt:

• Snowball: Extra cash goes to the debt with the lowest balance

• Avalanche: Send extra money to the debt with the highest interest rate

All three examples have the same total balance: $35,000. All three have the same current total in minimum payments, $822. Loans all have a five-year term. An extra $250 a month means the borrower can boost their payments to $1,072.

1. Going snowball costs you more than $4,400

Example One has the largest balance and highest interest rate on the same credit card: 

In this situation, you’d save a cool $4,412 in interest using the debt avalanche. It would also let you pay off your debts four months sooner.

2. Snowball and avalanche results are similar

Example Two has the highest balance on a loan with the lowest interest rate:

In this situation, the payoff time is identical and the interest savings is a couple hundred dollars. While not insignificant, it's not as big of a cost.

3. The avalanche saves you more than $1,000 in interest 

Example Three also has the highest balance on a credit card with high interest, but a fairly high balance on a loan. 

A borrower in this situation could choose which is more important: quicker payoff or saving $1,164 in interest.

As you can see, the snowball method is always more expensive. The fact is, you will make your costs higher if you wait to pay your most expensive loans. 

That said, you still may want to use the snowball method if you feel you'll struggle with sticking to a payoff plan without the extra motivation. But it could be worth considering if there are cheaper ways to keep yourself committed to debt repayment. 

Alternatives to the Debt Snowball vs. Debt Avalanche 

To use the debt snowball or debt avalanche, you need enough income to cover monthly minimum payments as well as some extra toward your debt. The terms of your existing loans remain the same in both methods.

But what if you can't afford to make your minimum payments, let alone pay extra every month? In this case, you may need to explore other options for addressing your debt. Here are a few potential options.

Debt consolidation

When you consolidate debt, you use a new loan to pay off multiple existing debts. It's also an opportunity to get a lower interest rate on the new loan than you're paying on average now. A lower interest rate could mean fewer interest fees, which would reduce your monthly payment and could make your debt more affordable. If you have recently improved your credit, it could make sense to shop around for a consolidation loan with a better rate.

Debt settlement

With debt settlement, you negotiate with your creditors to accept less than you owe to get rid of your debt. You could do this yourself, or you can hire a professional debt settlement company to work on your behalf.

A great first step is to look at your budget and run the numbers. Once you figure out how much of your income you could devote to debt repayment, you’ll be on your way to understanding which strategy is right for you. Then, you can choose your method and get started on the path to freeing yourself from your creditors for good.