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Avalanche vs Snowball - Methods for Paying Down Debt


There are two main ways of paying down debt: Avalanche method and Snowball method. There are hundreds of other methods, but these two are the predominant schools of thought when it comes to personal finance systems. However, most people do not have the discipline to follow these systems, and as a result they fail to make any progress and grow deeper and deeper into the hole.

A lot of people are not fitted with the tools to create financial freedom and prosperity. In fact, it is not mentioned at all until after high school for some people. Most others go through their entire lives without learning these valuable tools. Many like myself, have had to painstakingly research all of the techniques out there for paying down debt, creating new streams of income, and strategizing for the future. There are a bunch of techniques out there, with thousands of testimonials, that it often becomes an issue of paralysis by analysis. In my personal experience, I tested and trialed variations of snowball method and avalanche method until I was finally able to develop my own system. But, it might not be for everyone.


Picture this method as a gigantic avalanche of snow being crusted off the side of a mountain. Like the antarctic twin of a nuclear mushroom cloud, which divulges an explosion of chaos and mayhem. When the mayhem dies down, there is a pin drop of solace: solitude.

This method pertains to paying the highest interest-bearing debt first, while paying only the minimums for the lower interest debts. For example, LOAN A has 20% interest rate, LOAN B has 15%, and LOAN C has 10%. All of these loans have a monthly minimum payment of $50. You have $200 in available cash to pay down debts each month. Using the Avalanche method, you would pay $100 for LOAN B and C, and $100 to pay down LOAN A each month.
This means you are paying $50 extra to pay off LOAN A first since it has the highest interest rate, while the other loans are just covering the minimums.

  • You pay less in interest long run  
  • Less psychologically gratifying
  • Could take longer to destroy a loan  


Picture this method as a small snowball that quickly compounds into a bigger and bigger snowball as it rolls downhill.

This method is the go-to method for Dave Ramsay because it is the best for generating psychological wins each time a loan is paid in full. This is because the smallest principle loan amount is focused on first as opposed to the highest interest-bearing one. So lets say LOAN A has 20% interest rate, but it totals $5,000. LOAN B has 15% interest rate, but it totals just $2,000. LOAN C has 10% but it totals $3,500.
Assuming minimum payments of $50 and a free cash allowance of $200 per month, using the Snowball method you would pay $50 extra to pay off LOAN B first, and $100 for just the minimums on LOAN's A and C.

  • You destroy all the smaller loans quicker 
  • Psychologically gratifying and reinforces motivation

  • You pay more more in interest long run 


I figured this out through trial and error. It is a variation of the snowball method, except it significantly frees up your capital for other uses, such as saving up for investments, rainy day, and tax accounts.

Here is the broad overview of how it works: Essentially I pay myself first. 10% of all income goes to my investment accounts first. I have a high yield checking account for a big investment play. So 10% goes to that no matter what first. Another 10% goes to my M1Finance account. Then 10% goes to another high yield rainy day savings account. Finally 10% goes to my tax savings account for future tax expenses. Altogether 40% of my income is already set aside and never touched. After all of that is said and done, 10% then goes towards my loans, with the lowest principle amounts getting destroyed first, while the other loans are minimally paid. I found this psychologically gratifying in my own life because I have seen how quickly it compounds each of my accounts slowly over time; especially the dividend producing assets in my M1Finance account. The only downside to this method is that it requires some discipline, and organization. There needs a system in place for it work. I will write about this in another blog post, so stay tuned for that. 

Check out Part 2: Eliminating Debt Using Snowball Method

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