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Debt Snowball vs. Debt Avalanche: Which One Works Best?

Introduction

Debt repayment is a crucial financial goal for many individuals, yet choosing the right strategy can be challenging. Two of the most popular debt repayment methods are the Debt Snowball and Debt Avalanche strategies. Each approach has its unique benefits, depending on whether you prioritize motivation or interest savings. In this article, we compare these two methods and help you determine which one works best for your financial situation.

Understanding the Debt Snowball Method

The Debt Snowball Method focuses on paying off debts from smallest to largest, regardless of interest rates. The goal is to build psychological momentum by eliminating debts quickly.

How the Debt Snowball Works:

1. List all debts from smallest to largest balance.
2. Make minimum payments on all debts except the smallest one.
3. Allocate extra money toward the smallest debt until it is fully paid off.
4. Move to the next smallest debt and repeat the process.
5. Continue until all debts are cleared.

Example:

If you have three debts:

• ₹10,000 Personal Loan (8% Interest)
• ₹50,000 Credit Card Debt (15% Interest)
• ₹1,00,000 Car Loan (12% Interest)

With the Debt Snowball, you would:

1. Pay off the ₹10,000 personal loan first.
2. Use the freed-up money to pay the ₹50,000 credit card debt.
3. Finally, tackle the ₹1,00,000 car loan.

Pros of the Debt Snowball Method:

• ✅ Psychological Motivation – Small wins boost confidence and encourage debt repayment.
• ✅ Quick Debt Eliminations – Seeing results early can keep you committed.
• ✅ Simple and Easy to Follow – No need for complex calculations.

Cons of the Debt Snowball Method:

• ❌ More Interest Paid Over Time – Since it ignores interest rates, you may end up paying more in the long run.
• ❌ Not Ideal for High-Interest Debt – Prioritizing small balances may delay the repayment of high-interest loans.

Understanding the Debt Avalanche Method

The Debt Avalanche Method focuses on paying off debts with the highest interest rate first, reducing overall interest costs.

How the Debt Avalanche Works:

1. List all debts from highest to lowest interest rate.
2. Make minimum payments on all debts except the one with the highest interest.
3. Allocate extra money toward the highest-interest debt until it is paid off.
4. Move to the next highest-interest debt and repeat the process.
5. Continue until all debts are cleared.

Example:

Using the same debt scenario:

• ₹50,000 Credit Card Debt (15% Interest)
• ₹1,00,000 Car Loan (12% Interest)
• ₹10,000 Personal Loan (8% Interest)

With the Debt Avalanche, you would:

1. Pay off the ₹50,000 credit card debt first (highest interest rate of 15%).
2. Use the freed-up funds to tackle the ₹1,00,000 car loan (12%).
3. Finally, clear the ₹10,000 personal loan (8%).

Pros of the Debt Avalanche Method:

• ✅ Lower Interest Costs – You pay less interest overall compared to the Debt Snowball.
• ✅ Faster Debt Payoff for High-Interest Loans – Prioritizes costly debts, reducing financial burden sooner.
• ✅ Ideal for Those with Large, High-Interest Debt – Best suited for individuals with high credit card balances or payday loans.

Cons of the Debt Avalanche Method:

• ❌ May Take Longer to See Results – Large high-interest debts can take time to clear, reducing initial motivation.
• ❌ Requires More Discipline – Since it focuses on interest savings, it may not provide the quick wins needed to stay committed.

Debt Snowball vs. Debt Avalanche: Key Differences

Which Method is Right for You?

• Choose Debt Snowball if:
  • You need quick motivation to stay committed.
  • You have multiple small debts that you want to clear.
  • You prefer a simple, easy-to-follow method.
• Choose Debt Avalanche if:
  • You want to minimize total interest paid.
  • You have high-interest debt that is costing you a lot.
  • You are financially disciplined and can stick to a long-term debt plan.

Can You Combine Both Methods?

Yes! Some people start with the Debt Snowball to get quick wins and later switch to the Debt Avalanche to reduce interest costs. This hybrid approach helps balance motivation with long-term savings.

Additional Tips to Pay Off Debt Faster

• Make Extra Payments – Any additional income (bonuses, tax refunds) should go toward debt repayment.
• Cut Unnecessary Expenses – Reduce discretionary spending and use the savings for debt.
• Negotiate Lower Interest Rates – Contact lenders to request reduced interest rates or balance transfers.
• Automate Payments – Set up auto-payments to avoid late fees and penalties.
• Consider Debt Consolidation – If you have multiple high-interest loans, a consolidation loan may help reduce your overall interest rate.

Conclusion

Both the Debt Snowball and Debt Avalanche methods are effective in clearing debt—it ultimately depends on your financial goals and psychological preferences. If motivation is key, the Debt Snowball is best. If saving money is the priority, then the Debt Avalanche is the smarter choice. The most important thing is to start today and stay committed to your debt-free journey.

Source: Financial Express, "Best Debt Repayment Strategies for Indian Consumers," financialexpress.com