Debt Snowball vs. Avalanche: Why the Math Isn't the Whole Story
When it comes to the debt snowball vs avalanche question, the math isn't the whole story. By my estimation, I've sat down with more than 1,000 people to work on their finances, and that number keeps growing. Somewhere in that first conversation, someone almost always brings up paying off the largest interest first or AKA the avalanche. I understand why. On paper it looks like the smarter choice. You pay the highest interest rate first, you pay less interest overall, and who doesn't want to pay less interest?
But I've watched what happens after the plan leaves the kitchen table. The plan that works is the one people stick with long enough to finish. And here’s what I’ve learned sitting across the table from all those people: a winning plan is a lot like sanctification. It only works when you recognize who is on the throne. If God isn’t the owner of everything and you aren’t the steward, you’ll hijack the plan every day, no matter which method you pick.
Debt Snowball vs Avalanche, in plain terms
Both plans start in the same place. You write down every debt you owe. You pay the minimum on all of them. Then you take every extra dollar you can find and point it at one debt.
The only difference is which one you point it at.
With the debt snowball, you line your debts up from the smallest balance to the largest and ignore the interest rates. You knock out the smallest one first. When it's gone, you take that payment and add it to the next one. The payment gets bigger every time, like a snowball rolling downhill.
With the debt avalanche, you line them up by interest rate, highest to lowest, and ignore the balances.
You go after the highest rate first.
If this were purely a math problem, the avalanche would win. I'll say that up front. But it's not purely a math problem.
The two things I bring up every time
When a client mentions the avalanche, I always bring up two things.
The first is the interest rate itself. When we took on that debt, most of us weren't worried about the interest rate. We wanted the car, or the couch, or the vacation, and we accepted whatever rate came with it. I'm not saying that to make anyone feel bad. I say it because if the rate didn't matter much to us then, it probably isn't going to be what keeps us going now.
The second is where you are with willpower, self-discipline, and motivation. Those run low at the start of getting out of debt. If you go months without a win, it's really easy to quit. I see it happen over and over. Just my two cents - but I don't believe in will power but I do motivation. Win one time and you will be motivated to keep winning. It's in the consistency of easy wins that you build self-discipline.
What I see when I run both
I run both scenarios for every financial coaching client. Snowball and avalanche, side by side, with the total interest for each.
Most of the time the avalanche saves a few hundred dollars. Usually less than $500. Sometimes it saves a payment or two, depending on the numbers. And a lot of the time, it saves nothing worth talking about.
When it comes to GETTING OUT OF DEBT, the difference is negligible. It really is a the difference between giving up and sticking to it. Call that extra interest the cost for getting into debt and realizing it is time to get out (you know I am right!)
So that's the tradeoff we're actually weighing. A few hundred dollars, maybe, against a much bigger chance that you give up before you're done. I'll take the snowball.
Quick wins keep you going
The snowball works because the wins come fast. You pay off that first credit card and you feel it. That's a real dopamine hit. You cross a line off the list, the balance is gone, and it feels good. Then it happens again.
The research backs this up. A 2012 study from Northwestern's Kellogg School of Management looked at about 6,000 people paying off credit card debt. The ones who paid off their smallest balances first were more likely to get out of debt completely.
This is how I picture it. Imagine you're standing at the base of a snowy mountain, looking up. Snowballs start rolling down, getting bigger as they go. You stay and watch. It's fun. You can see the momentum building, and you're not afraid of it.
Now imagine standing at the bottom of that same mountain and watching an avalanche come down. That's overwhelming. You're running from it, or you're looking for a way to run.
That's how the avalanche method feels to a lot of people. It can have you staring at your biggest, highest-interest debt for a year or two before anything closes. You're paying and paying and the list looks the same, and that's when people lose their momentum.
When an emergency hits
Wait for it...an emergency hits.
The car breaks down, the water heater goes, somebody needs a doctor.
On the snowball, you sit down and do the math. Say the water heater goes out, and it's a $900 fix. You've been paying an extra $300 a month on debt. So you pause, pay the bill out of your emergency fund - pay the the extra $300 back to your emergency fund and keep paying your minimums on your credit cards. Once you have your emergency fund back at the correct amount you pick right back up. You know you are only 3 months behind but you know when the snowball will start again. You can see your next win just down the line. FYI- with this mental shift for winning I can guarantee that you will find other ways in those 3 months to shave off some spending to move it faster. It never fails.
You have a plan, and you can see exactly how much it slows you down. It's minimal.
On the avalanche, you might still be two or three years away from paying off that first debt. Add three more months to that, and it's easy to get lost in the slowdown. When the finish line is already that far away, it's a lot harder to see the light at the end of the tunnel.
We're changing behavior
Dave Ramsey taught me that personal finance is 80 percent behavior and only 20 percent head knowledge. After sitting down with more than 1,000 people, I agree with him. This is a behavior problem, not a math problem. Most people already know they need to spend less than they make.
Knowing isn't what's missing.
What changes behavior is seeing progress, over and over, until it becomes how you live. The snowball gives you that. Every payoff is a little bit of positive reinforcement, and that consistency is what makes the change stick. The avalanche doesn't do much for the behavior side at all.
Jesus put it this way:
"One who is faithful in a very little is also faithful in much, and one who is dishonest in a very little is also dishonest in much." (Luke 16:10, ESV)
That first small card is the "very little." Being faithful with it is how you learn to be faithful with much.
Who's on the throne
No payoff method will hold if the root hasn't changed. We can't steward well what we haven't surrendered. For a while, our wants and our fears and our comfort were running the money. That's usually how the debt got there. When God takes His place over our finances, the plan stops being one more thing to white-knuckle. It becomes obedience.
Some months will feel long. Hold onto this:
"And let us not grow weary of doing good, for in due season we will reap, if we do not give up." (Galatians 6:9, ESV)
My advice? Pick the method you'll finish. For almost everyone I sit down with, that's the debt snowball.
I'm not a financial advisor. I'm a coach who has run these numbers with a lot of people. Your situation is yours, so look at your own numbers and make a wise choice.
Your next step
Want to see your own numbers? Put your debts into the Debt Payoff Calculator and compare the two methods for yourself.
When you're ready for a plan, start with The Faithful Steward's Financial Reset. It walks you through getting your money in order under God, one step you can actually win at a time.
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