When it comes to paying off debt, people often wonder, which debt repayment method is better avalanche or snowball? Whether you know them by there names or not, these two methods are the most popular methodologies someone in debt can implement to pay off debt whether by settling the one with the high interest rates first (avalanche) or one with the highest balance (snowball). Regardless which method you choose, in this post we aim to answer your question – which debt repayment method is better avalanche or snowball?
Recently I shared a post on how I paid of £12,000 using the Snowball Method within 18-months on a small salary without getting another job to supplement my income. Debt is a debilitating disease that can suck the life out of you if you don’t take control of it or better yet if you don’t pay it off when you should. Having experienced the hardships associated with debt, apart from my mortgage which I am repaying off slowly, I don’t want to incur any other debts ever again. I live by this simple motto, if you don’t have it, don’t spend it which I think many people should adhere to as well.
Disclaimer: I am not a qualified financial advisor, there are many debt charities that you can contact if you are struggling with debt. This post aims to share tips and tricks on how you can pay off your debt fast using either of the methods.
Personal finance is something I wish was taught in our schools because most young adults are ill equipped to venture out into the world. Unless you are taught it at home, it often comes as a shock too many about how quickly one can get into debt and how hard it is to get out of the debt cycle once you are in it. I mentioned in this post that I struggled to get out of the payday loan cycle for many months, it took getting control of my finances before I could break the cycle.
Over the last few years, I have been educating myself on personal finance management as well saving and investing in the stock market. Once I got out of debt I knew its a place I never want to return to and 5+ years debt free and I love it. When you don’t know where to start with debt management, the best place is to write down a budget of ALL your incomings and outgoings including the Starbucks lattes, MacD and monthly manicure appointments. Only when you understand your incomings and outgoings can you have a clear picture on that status of your finances.
Now that you have a clear picture of your personal finance health, the next question is – which debt repayment method is better avalanche or snowball based on my current financial health? To help you decide, here is how each of these methods work.
The Avalanche Method
This debt repayment method implores a simple strategy where by you pay off the debt with the highest interest rate and paying minimum required amounts to your other debt. For example, if your debts had the following interest rates, you would pay off the one with the highest i.e. credit card – £2,000 APR 32%, loan – £10,000 APR 19% and store card – £500, APR 23%, you would start paying off the credit card first because it has the highest interest rates.
This method is simple enough and had a potential to save you the extra charges that credit/store card and loan companies often add to your balance every single month. The biggest issue I see with this method is whilst you are saving money on interests, you won’t immediately see the change in your finances, I mean in 3-months time your balance won’t have decreased that much and when people don’t see an ‘immediate’ change, they feel defeated.
The Snowball Method
This debt repayment method is the method of my choice and it is what I used to pay off my debt – granted it doesn’t save you money on interests but it also depends on how you play it out. The snowball method is another simple strategy whereby you pay off the largest amount first regardless of the interest rates. So, in our example above – you would pay off the store card first, then the credit card and then the loan last. This way you wee see a change in your store card debt within 3 months.
Both the avalanche and snowball methods work in a similar manner whereby, you pay more for one debt (high interest or low balance). Once that is paid off, you use the amount you used to allocate to the paid off debt and move it to the next debt. So, if you had allocated £60 a month towards paying off the store card, once its paid off you would move the £60 and combine with the £75 (as an example allocated to the credit card) to the credit card meaning now you pay £135 towards your credit card monthly instead of £75.
I think for most people, using the snowball method is much better than the avalanche because even though you are not saving in high interest rate debts you can still see progress on your other debts. I adapted the snowball method slightly when I was paying off my debt by splitting the allocated amount between my savings pot and the next big debt and then at the end of the year I would use the money in the savings pot to make a large repayment to the next big debt.
Whilst these two debt repayment methods will help you get your finances on track, you need to do more to get rid of your debt. You will need to
- Tighten the belt and find other ways to save money whether on bills or on your weekly/monthly shop
- Don’t incur more debt as you are struggling to get out of another
- Cut the credit cards up and debt them from your iPhone wallets so you don’t use them
- Have a budget – write everything down, I use spreadsheets and they do wonders.
- Read up and how to become debt free and educate yourself
- Find a side hustle (even selling old clothes) or homemade items online
I hope you find these tips handy and for those in debt, perseverance and discipline pays off in the end, hang in there it will get better.
