Debt & Credit
Lesson 2 of 33 min60 XP
Debt & Credit
Avalanche vs Snowball: two ways to crush debt
Math says avalanche. Psychology often says snowball. Both work.
Last reviewed: · Reviewed by the Money Scale editorial team
Avalanche method
- •List debts by interest rate, highest first.
- •Pay minimums on all, throw every extra dollar at the highest APR.
- •Mathematically optimal — saves the most money in interest.
Snowball method
- •List debts by balance, smallest first.
- •Pay minimums on all, throw every extra dollar at the smallest balance.
- •Less mathematically efficient, but each paid-off debt is a win that builds momentum.
20%+
APR on the average credit card
Anything above ~8% is usually worth aggressive paydown over investing.
Pick the one you'll actually finish
Studies show snowball users are more likely to stick with the plan because of the dopamine hit of clearing balances. The 'optimal' plan you abandon costs more than the 'suboptimal' plan you complete.
Takeaway
Pick avalanche if you're motivated by math. Pick snowball if you're motivated by quick wins. Either way, automate it.
Quick check · 60 XP
Which method pays off the SMALLEST balance first?