Paying off debt: the snowball or avalanche method?

Paying off debts: which strategy works?

If you have several debts, it can feel overwhelming. Two proven strategies can help you: the snowball method and the avalanche method.

The snowball method

With the snowball method, you start with the smallest debt, regardless of the interest rate.

How it works:

1. List all your debts from smallest to largest
2. Make the minimum payment on all debts
3. Put all your spare money towards the smallest debt
4. Once it is paid off, move on to the next
5. The money freed up "snowballs" towards the next debt

Example:

• Debt A: €500 (5% interest)
• Debt B: €2.000 (12% interest)
• Debt C: €5.000 (8% interest)

You start with debt A, even though debt B has the highest interest rate.

Advantages:

• ✅ Quick early wins
• ✅ Visible progress keeps you motivated
• ✅ Fewer debts to manage
• ✅ Psychologically rewarding

Disadvantages:

• ❌ Not the best option financially
• ❌ You may pay more interest

The avalanche method

With the avalanche method, you start with the debt with the highest interest rate.

How it works:

1. List all your debts from highest to lowest interest rate
2. Make the minimum payment on all debts
3. Put all your spare money towards the debt with the highest interest rate
4. Once it is paid off, move on to the next
5. You maximise your savings on interest costs

Example (same debts):

You start with debt B (12% interest), then C, then A.

Advantages:

• ✅ The best option financially
• ✅ You pay the least interest
• ✅ Debt-free sooner
• ✅ Lower overall costs

Disadvantages:

• ❌ It can take a long time to achieve your first win
• ❌ Less motivating at the start
• ❌ Requires more discipline

Comparing the figures

Suppose you have €8.000 in debt across three loans and €500 available each month:

The difference is €70 and 1 month. Not huge, but it adds up with larger debts.

Which method suits you?

Choose the snowball method if:

• You need motivation
• You want to see results quickly
• You find it hard to keep going
• The differences in interest rates are small

Choose the avalanche method if:

• You are disciplined
• You want to make the best financial choice
• The differences in interest rates are large
• You do not need extra motivation

A hybrid approach

You can also combine the two:

1. Start with one small debt (snowball) for an early win
2. Then switch to the avalanche method for the rest

Practical tips for both methods

1. Create an overview: Know exactly what you owe
2. Automate: Set up automatic payments
3. Generate extra income: Take a second job, sell unwanted items
4. Avoid new debts: Stop borrowing
5. Celebrate milestones: Reward yourself (inexpensively) for your successes

Conclusion

Both methods work. The best method is the one you can stick to. If you are unsure, start with the snowball method for motivation. The most important thing is to get started and keep going.