Is the debt snowball or avalanche debt reduction method better? I hope to help you answer that question, but to be honest the answer is a combination of both. What I mean is that you can have the best of both worlds. How can you utilize both the snowball method and the avalanche method to reduce your debt? Continue reading to learn how.
Understanding debt snowball and avalanche methods
To better comprehend how these methods are different, let’s explain them. The snowball method takes the path of paying off small balances first like rolling up snow into a ball, and the avalanche method recommends paying off debts with the highest interest first like a falling avalanche.
A metaphor is another way to think of it. Say you are a sailor and your ship has a small hole on one side and a large one on the other. The obvious answer is to plug the large one first, right? If these holes represented debt, the snowball method will tell you to plug up that small hole first because it’s the easiest to deal with, and then after that success, deal with the large hole. The avalanche method suggests you deal with the large hole first because it’s taking on the most water. That large hole of the highest interest debt is sinking your ship of financial well-being. They can cause a lot more damage.
Frequently you’ll find that financial bloggers will tell you that it’s a matter of what’s important to you: paying debt off quickly or remaining dedicated to paying your debt off. Some celebrities in the finance sphere swear by the debt snowball method because it encourages you to tackle all of your smaller debts first. Others consistently recommend you utilize the avalanche method.
How it compares
Here’s a scenario:
Monthly Payment $700
The total debt is $25,000 and the monthly payment is $1,000 each month. If you utilize the snowball method, you will pay back $34,494 in 35 months, whereas if you use the avalanche method, you will pay off $33,186 in 34 months – saving you $1,308.
Ultimately, you have to ask yourself what you’re capable of maintaining. Both options pay the same amount, but one method saves you money while the other gives you quicker satisfaction of debt relief.