Avalanche or Snowball
With several debts and a fixed budget, the minimums are paid on everything and any extra goes to one target debt. The only decision is which one:
- Avalanche — attack the highest interest rate first. Mathematically optimal; always produces the lowest total interest and the shortest payoff.
- Snowball — attack the smallest balance first. Costs more in interest, but clears individual accounts sooner.
The gap between them is usually smaller than expected. In typical household debt mixes the avalanche saves a few hundred to a couple of thousand dollars — real money, but not decisive if the snowball is the method you will actually stick with.
Why the Snowball Persists
A 2016 study in the Journal of Marketing Research found that people who cleared small balances first were more likely to eliminate their debt overall, despite the higher interest cost. Closing an account is a visible, concrete win, and it frees up its minimum payment to add to the next target. The best method is the one completed.
The Rollover Is the Engine
Both methods depend on the same mechanism: when a debt is cleared, its minimum payment is added to the extra applied to the next debt. The total monthly outlay never falls, so each successive debt is attacked with a larger payment than the last. This is what makes the final debts disappear so quickly and why the timeline is not linear.
Where Neither Method Applies
- An emergency fund comes first. Clearing debt with no cash reserve simply means the next unexpected expense goes back on the card.
- Capture the employer match first. A 50% match beats any consumer interest rate.
- Debts with promotional periods should be prioritised by deadline, not rate — a 0% balance expiring in three months outranks a 25% card.
- Very low-rate debt — a 3% student loan or a 2% car loan — is rarely worth accelerating over investing.
Consolidation Is Not Payoff
A consolidation loan can lower the rate and simplify the payments, but it does not reduce what is owed, and it frees up card limits that are easy to fill again. It helps when the new rate is materially lower and the cards are closed or left untouched. Otherwise it converts one problem into two.
Frequently Asked Questions
Should I pay off debt or invest?
Compare the interest rate against a realistic after-tax return. Above roughly 8%, paying the debt wins almost always; below 4%, investing usually does; in between it is close, and the guaranteed return of debt repayment has real value.
Does paying off debt improve my credit score?
Lowering revolving utilisation helps quickly and substantially. Closing installment loans has little effect, and closing the account entirely can reduce the score slightly by shortening credit history.
What if I cannot cover the minimums?
Contact the lenders before missing a payment — hardship programs, temporary rate reductions and deferrals exist and are far easier to arrange before delinquency. A non-profit credit counselling agency can negotiate a debt management plan.