Quick Comparison
The Two Methods
| Method | Pay Off First | Benefit |
|---|
| Avalanche | Highest interest rate | Saves most money |
| Snowball | Smallest balance | Fastest wins |
Debt Avalanche Method
How It Works
| Step | Action |
|---|
| 1 | List all debts by interest rate (highest first) |
| 2 | Make minimum payments on all |
| 3 | Put extra money on highest rate debt |
| 4 | When paid off, move to next highest |
| 5 | Repeat until debt-free |
Example
| Debt | Balance | Rate | Minimum |
|---|
| Credit Card A | $3,000 | 22% | $90 |
| Credit Card B | $5,000 | 19% | $150 |
| Car Loan | $8,000 | 7% | $200 |
| Student Loan | $15,000 | 5% | $175 |
Avalanche order: Credit Card A → Credit Card B → Car Loan → Student Loan
Pros & Cons
| Pros | Cons |
|---|
| Saves most on interest | Largest debt may take longest |
| Mathematically optimal | Slower initial progress |
| Best total outcome | May feel less motivating |
Debt Snowball Method
How It Works
| Step | Action |
|---|
| 1 | List all debts by balance (smallest first) |
| 2 | Make minimum payments on all |
| 3 | Put extra money on smallest balance |
| 4 | When paid off, move to next smallest |
| 5 | Repeat until debt-free |
Example (Same Debts)
| Debt | Balance | Rate | Minimum |
|---|
| Credit Card A | $3,000 | 22% | $90 |
| Credit Card B | $5,000 | 19% | $150 |
| Car Loan | $8,000 | 7% | $200 |
| Student Loan | $15,000 | 5% | $175 |
Snowball order: Credit Card A → Credit Card B → Car Loan → Student Loan
In this example, the order is the same, but often it differs.
Different Example
| Debt | Balance | Rate | Avalanche | Snowball |
|---|
| Store Card | $500 | 18% | 3rd | 1st |
| Credit Card | $3,000 | 22% | 1st | 2nd |
| Car Loan | $8,000 | 7% | 4th | 3rd |
| Personal Loan | $5,000 | 12% | 2nd | 4th |
Order differs based on method.
Pros & Cons
| Pros | Cons |
|---|
| Quick wins | Pays more interest overall |
| Builds momentum | Not mathematically optimal |
| Psychologically rewarding | May take longer total |
Math Comparison
| Debt | Balance | Rate |
|---|
| Credit Card | $8,000 | 22% |
| Personal Loan | $10,000 | 12% |
| Car Loan | $7,000 | 7% |
| Student Loan | $5,000 | 5% |
Results
| Method | Time to Debt-Free | Total Interest |
|---|
| Avalanche | ~32 months | ~$4,800 |
| Snowball | ~34 months | ~$5,600 |
| Difference | 2 months | ~$800 |
Avalanche saves money, but the difference depends on your specific debts.
Which Should You Choose?
Choose Avalanche If
| Situation | Why |
|---|
| You’re disciplined | Can stick to plan without quick wins |
| High-rate debt is small | Will pay off quickly anyway |
| Saving money is priority | Maximum interest savings |
| Debts have big rate differences | Greater savings |
Choose Snowball If
| Situation | Why |
|---|
| You need motivation | Quick wins keep you going |
| You’ve tried before and quit | Different approach |
| Balances are similar | Order matters less |
| Smallest debt has low rate | Psychological benefit |
Hybrid Approach
Best of Both
| Strategy | How |
|---|
| Start with snowball | Pay off 1-2 small debts |
| Switch to avalanche | Then focus on high interest |
| Get wins AND savings | Balanced approach |
Alternative: Same Rate First
| If Two Debts Similar Rate | Choose |
|---|
| 22% on $3,000 vs 21% on $500 | Pay the $500 first |
| Barely lose interest | Gain psychological win |
Step-by-Step Implementation
Getting Started
| Step | Action |
|---|
| 1 | List all debts (balance, rate, minimum) |
| 2 | Choose method |
| 3 | Set up automatic minimums |
| 4 | Allocate extra payment |
| 5 | Track progress monthly |
| Source | Amount |
|---|
| Reduce expenses | Varies |
| Side income | Varies |
| Tax refund | Annual |
| Sell unused items | One-time |
| Cancel subscriptions | $50-200/month |
Common Questions
What About 0% Balance Transfers?
| Action | |
|---|
| Use 0% period | Pay off before promo ends |
| In avalanche | Becomes lowest priority |
| In snowball | Based on balance size |
| Watch end date | May need different strategy |
Should I Invest or Pay Debt?
| Debt Rate | Action |
|---|
| Over 8-10% | Pay debt first |
| Under 5% | Consider investing |
| Between | Depends on risk tolerance |
What About Employer Match?
| Always | Get full employer RRSP match |
| Then | Pay high-interest debt |
| Match is | Instant 50-100% return |
Tracking Your Progress
Simple Tracker
| Month | Debt Name | Start | Payment | Balance |
|---|
| Jan | Credit Card | $3,000 | $600 | $2,400 |
| Feb | Credit Card | $2,400 | $600 | $1,800 |
| Mar | Credit Card | $1,800 | $600 | $1,200 |
Celebrate Wins
| Milestone | Celebration |
|---|
| First debt paid | Small treat |
| Halfway | Acknowledge progress |
| Debt-free | Meaningful reward |
After Debt is Gone
Next Steps
| Step | Action |
|---|
| 1 | Build emergency fund (3-6 months) |
| 2 | Increase retirement savings |
| 3 | Save for goals |
| 4 | Don’t accumulate new debt |