Paying Down Loans: The Snowball vs. Avalanche Method

With many Americans living in debt, you can find endless debt reduction strategies and methods. Among the most popular are the snowball method and the avalanche method. One is focused on paying off smaller balances first while the other is focused on paying off higher interest rates first. The one that’s best for you depends on the makeup of your debt and your financial situation. Whichever you choose, AutoPayPlus is here to support you on your journey to loan repayment. Here’s a guide to each debt reduction strategy to help you determine which one is best for you:

What is the snowball method?

The snowball method involves paying down your lowest account balance first, then putting that monthly payment to the next lowest balance. The idea is that you build up momentum by “snowballing” your payments as you pay off each loan. For example, if you have debt from two creditors, and one account balance is $500 while the other is $1000, you’d focus on paying off the $500 balance first. If you pay $50 to that balance and $100 to the larger one each month, you’d combine those to pay $150 to the larger balance once the smaller one is paid off.

An easy way to get started with the snowball method is through financial concierge services, like AutoPayPlus. Set up automatic recurring payments to your creditors in the amount of your choice and a frequency based on your paychecks, and watch as you pay off your debt sooner. Having the ability to manage and customize your debt payments all in one place helps you remain organized and implement the snowball method more effectively.

What are the pros and cons of the snowball method?

The main goal of the snowball method is to pay off more accounts quicker by choosing to focus on the smallest account balance. This way, you continue gaining momentum and receive a sense of instant gratification.

Advantages of the snowball method include:

Celebrating small, quick wins: By maintaining momentum, you’ll stay motivated as you watch your smaller debts go away one-by-one.
Straightforward approach: The snowball method is simpler to implement than the avalanche method because it doesn’t require you to locate or calculate your interest rates. Simply look at your statements and focus on the lowest balance.
Ability to pay off debt quicker: Depending on your debt situation, you may be able to pay off your debt quicker as you pay more than the minimum payments.

Disadvantages of the snowball method include:

Less interest savings: The snowball method is not an interest-focused approach. Instead, it focuses on balances. Therefore, you may end up paying more interest during the process than you would using the avalanche method.
It ignores other factors: Each loan is different with its own set of characteristics. The snowball method doesn’t take into account other reasons why you’d want to pay off a different loan first, such as a high or variable interest rate.
Could take longer: Depending on the structure of your debt, it could potentially take longer to pay it off since it doesn’t focus on minimizing interest payments and maximizing principal payments.

What is the avalanche method?

The avalanche method prioritizes paying off debt with the highest interest rates first. With this method, you’ll pay as much as possible toward the account with the highest interest rate, then pay extra toward subsequent accounts with the next highest interest rates. With AutoPayPlus, you can implement the avalanche method by setting up custom payments towards all your loans in one place, helping you better manage your debt and overall financial picture.

For example, you have one loan with a 7% interest rate and a $75 monthly payment and one with a 20% interest rate and a $150 monthly payment. You’d focus on paying extra money to the loan with the 20% interest rate, regardless of which has the higher balance. You may decide to pay an extra $100 towards that loan, for a total monthly payment of $250. Once you pay off that loan, you can either pay that extra $100 towards the loan with the 7% interest rate (for a monthly payment total of $175) or pay an extra $250 (for a monthly payment total of $325). This is the monthly payment you were paying to the loan with the 20% interest rate plus the minimum payment of the loan with a 7% interest rate.

What are the pros and cons of the avalanche method?

Since the avalanche method is focused on saving on interest, you’ll likely see more interest savings but it may take longer to see your debts be paid off.

Advantages of the avalanche method include:

Interest savings: Depending on your debt makeup, you’ll likely reduce the total amount of interest paid than you would using the snowball method, since the avalanche method focuses on knocking down debt with higher interest rates first.
A sense of relief: Although you may not see your debts be paid off as quickly as you could using the snowball method, you may feel a sense of relief knowing that you’re spending less on interest than you would have using the snowball method.

Disadvantages of the avalanche method include:

Lack of motivation: Since you likely won’t see your accounts dropping off at the rate you would using the snowball method, you won’t feel the instant gratification and momentum, making it more difficult to stay motivated to continue payments.
More complex: It’s not as simple as looking at which account has the lowest balance. You’ll have to take a deeper look into your loans to determine your interest rates. If you have a variable interest rate, you may even have to do some calculations.

How does AutoPayPlus support either method?

Whichever method you choose, AutoPayPlus can support you in achieving your financial goals through automatic bill payments tailored to your needs. Match your paychecks to your custom, automated bill payments and manage all your debts in one place. We’re here to help you accelerate your loan payments and protect your credit with our individualized budgeting tools. Join the 500,000+ AutoPayPlus Members who have or are working toward brighter financial futures by giving us a call at 800-894-5000 or by scheduling an appointment with a Payment Concierge.