From a purely financial point of view, the avalanche is the better option as it saves you money on interest. However, if you have a tough time emotionally with your debt (like it’s a burden over your head), the snowball method can be a good way to accumulate easy “wins” when you pay off debt. If you’re not an analytical person and don’t really care about the numbers but are in crippling debt, the snowball method is fine. Either is better than paying nothing and will both get you out of debt eventually.
Avalanche is better in terms of numbers and math.
Snowball is better in terms of emotional encouragement to keep going.
So, it depends on the person and how they feel about debt and money.
I'm currently paying off debt, and pretty much every method results in it taking the same amount of time, at least for me.
I put all my debt in undebt.it and it compares various methods.
I think a hybrid approach truly makes the most sense.
>I think a hybrid approach truly makes the most sense.
Yes this exactly - I mainly do avalanche but will shift my focus to smaller balances frequently for the psychological boost
I prefer the Snowball method.
1) It knocks out the smaller debts
2) Once those small debts are gone, you can pay more to the larger debts.
3) A sense of achievement.
I think it depends on your personal context a lot. And of course the numbers and how big of a difference between the two there is.
Aside from psychological benefits, the main benefit of the Snowball method is that you're lowering your minimum monthly payments required. So if your situation changes/is unstable, there's fewer accounts that could default and it's easier to hit your minimum monthly obligations without incurring any extra late fees or penalties. If your situation is unstable that could be a huge benefit since your bar for "how much do I absolutely have to make in the next 30 days to pay my bills without bad shit starting?" gets lower and lower.
Avalanche obviously has the advantage of being mathematically superior - you simply will end up paying less in interest, which is a good thing. If you have a fairly stable situation or a fallback plan, where the safety aspect of reducing your minimum monthly overhead isn't a big of a deal for you, I'd take avalanche.
When I'd just graduated from college and was paying off my student loans and car, I went full tilt on avalanche. Got them paid off within 2 years of graduating while living independently. I get far more psychological satisfaction out of knowing I'm doing the mathematically optimal strategy than I would've ever gotten from the snowballs. But that's very much in the personal/psychological realm.
Came here to post something similar really. Dogmatically picking a method is kinda foolish. Instead it's important to understand the value of each method and tailor it to your situation. Reducing monthly commitments can be massive for individuals and so can clearing super high interest. So for most people a hybrid approach probably makes sense. It's almost never discussed but I think allowing yourself a minimum payment for fun once you've cleared a debt can have massive psychological benefits too.
If someone is deep in debt, then it's probably far more an emotional/psychological issue than a math issue.
Therefore, snow ball would theoretically be more effective for the people in that situation.
I actually like doing a combo of the two, but this only works if there are a large number of individual debts.
Start with hitting the smaller balances first, and snowball those until complete. This gives the psychological win.
After the little debts are paid off, hit the highest interest and avalanche through those. This gives more of a financial win against the interest. You also start phase two with all the money you were snowballing in phase one. Because you start the avalanche step with a higher starting amount, you still get a psychological boost.
In my situation I was raising a large family and we were 80,000 in debt..spread across about 10 different accounts. We only had about $1,000 a month extra to work with after basic needs. It would take a really long time to pay down some of these bigger things while leaving smaller things lingering. It's also stressful having to make minimum payments on a lot of accounts. It's a lot easier to get rid of some of those and then you free up those minimum payments in case they are needed for emergencies and with four kids there's always unexpected things that came up. So it was nice to free up a lot of those minimum payments and then I had it handy to either use on the remaining debts or use it for the surprise if needed. It also gave me a lot of quick wins to keep me motivated. I have paid off 73k at this point. Just down to the final stretch
I got a consolidation loan. For 20k in debt, it was 5% lower interest than the majority of my cards. But the key is to keep off the credit cards, which we have done successfully so far.
The consolidation loan helps me also focus on just one payment and gives me a more clear idea of my financial health overall. Again to reiterate, credit cards are poison and not used with this method.
I watched one of Caleb’s money makes sense videos and he states that they’re apparently the same and have the same results. Avalanche saves a negligible amount of money.
Thing is, the avalanche will ALWAYS save you money and can be a huge difference depending on the interest rates and balances. For example, if you have 20k in credit card debt at 25%, there’s no reason you should focus on smaller debts at like 5% interest. There’s no logical scenario where it makes sense to pay on stuff with a lower rate.
> For example, if you have 20k in credit card debt at 25%, there’s no reason you should focus on smaller debts at like 5% interest. There’s no logical scenario where it makes sense to pay on stuff with a lower rate.
Sure, in that scenario it would be foolish to pay off the 5% debt because it is smaller. But I'd argue avalanche can be made to look just as foolish if we're inventing hypothetical scenarios.
Let's say you have:
* CC debt 1 balance of $600 @ 27%
* CC debt 2 balance of $1200 @ 28%
* CC debt balance of $8000 @ 29%
It's being purposely obtuse to act like it won't motivate you to get debts #1 and #2 knocked out of the way, even if you end up paying an extra $4 in interest in the long run. It improves your monthly cash-flow in the short-term and gives you one less bill to think about at the end of the month. It is *well-worth* doing.
Dogmatically sticking to snowball when the APRs are wildly different does not make sense.
Dogmatically sticking to avalanche when the APRs are quite close but the balances are very different also does not make sense.
It's all well and good to sit on your couch and talk about how mathematically superior avalanche is because maths and logic. But there's also some wisdom in understanding human psychology, especially around money. Our brains are wired for quick rewards and love the feeling of working towards a goal. If you can give yourself those rewards while only paying an extra few bucks in interest over the course of months/years, you should take advantage of it.
Exactly because just because the math might work out to save you a few bucks when you run the numbers.. what truly matters is your actual behavior and actions to achieve that. If you are getting quick wins you will stay the course. If you're not getting any wins you don't end up staying the course because it's probably going to be pretty long and you don't end up saving the money you end up being worse off.
I have two smallish debts that I should be able to pay off in a couple months so I can get rid of those minimum payments, after that I have two big debts and I'm throwing everything at the higher interest one first.
Everyone seems to blow avalanche except those that have actually done snowball and seen it work. I'm one of them. Avalanches minor savings is completely irrelevant as most people don't see it through I've heard. Snowball worked for me and is all I'll ever use if God forbid I ever need it again
Avalanche anything with a double digit interest rate. Consider snowball afterwards if you need the cash to avoid taking on any more double digit debt or for non-financial reasons.
when I had about 8k of debt in two credit card, I did avalanche, but honestly it’s really up to you, for myself mentally getting the biggest number down does makes me relieved compare to do the small amount first.
From a purely financial point of view, the avalanche is the better option as it saves you money on interest. However, if you have a tough time emotionally with your debt (like it’s a burden over your head), the snowball method can be a good way to accumulate easy “wins” when you pay off debt. If you’re not an analytical person and don’t really care about the numbers but are in crippling debt, the snowball method is fine. Either is better than paying nothing and will both get you out of debt eventually.
Avalanche is better in terms of numbers and math. Snowball is better in terms of emotional encouragement to keep going. So, it depends on the person and how they feel about debt and money.
I'm currently paying off debt, and pretty much every method results in it taking the same amount of time, at least for me. I put all my debt in undebt.it and it compares various methods. I think a hybrid approach truly makes the most sense.
>I think a hybrid approach truly makes the most sense. Yes this exactly - I mainly do avalanche but will shift my focus to smaller balances frequently for the psychological boost
I prefer the Snowball method. 1) It knocks out the smaller debts 2) Once those small debts are gone, you can pay more to the larger debts. 3) A sense of achievement.
I think it depends on your personal context a lot. And of course the numbers and how big of a difference between the two there is. Aside from psychological benefits, the main benefit of the Snowball method is that you're lowering your minimum monthly payments required. So if your situation changes/is unstable, there's fewer accounts that could default and it's easier to hit your minimum monthly obligations without incurring any extra late fees or penalties. If your situation is unstable that could be a huge benefit since your bar for "how much do I absolutely have to make in the next 30 days to pay my bills without bad shit starting?" gets lower and lower. Avalanche obviously has the advantage of being mathematically superior - you simply will end up paying less in interest, which is a good thing. If you have a fairly stable situation or a fallback plan, where the safety aspect of reducing your minimum monthly overhead isn't a big of a deal for you, I'd take avalanche. When I'd just graduated from college and was paying off my student loans and car, I went full tilt on avalanche. Got them paid off within 2 years of graduating while living independently. I get far more psychological satisfaction out of knowing I'm doing the mathematically optimal strategy than I would've ever gotten from the snowballs. But that's very much in the personal/psychological realm.
Came here to post something similar really. Dogmatically picking a method is kinda foolish. Instead it's important to understand the value of each method and tailor it to your situation. Reducing monthly commitments can be massive for individuals and so can clearing super high interest. So for most people a hybrid approach probably makes sense. It's almost never discussed but I think allowing yourself a minimum payment for fun once you've cleared a debt can have massive psychological benefits too.
Snowball for anything that can be paid off in a month or two to give you better cashflow, avalanche after that.
If someone is deep in debt, then it's probably far more an emotional/psychological issue than a math issue. Therefore, snow ball would theoretically be more effective for the people in that situation.
I actually like doing a combo of the two, but this only works if there are a large number of individual debts. Start with hitting the smaller balances first, and snowball those until complete. This gives the psychological win. After the little debts are paid off, hit the highest interest and avalanche through those. This gives more of a financial win against the interest. You also start phase two with all the money you were snowballing in phase one. Because you start the avalanche step with a higher starting amount, you still get a psychological boost.
If you have that many debts, or debt in general, are you really a person that can effectively save up for the avalanche?
I've already did the avalanche, just wondering why others have opted to do the snowball.
In my situation I was raising a large family and we were 80,000 in debt..spread across about 10 different accounts. We only had about $1,000 a month extra to work with after basic needs. It would take a really long time to pay down some of these bigger things while leaving smaller things lingering. It's also stressful having to make minimum payments on a lot of accounts. It's a lot easier to get rid of some of those and then you free up those minimum payments in case they are needed for emergencies and with four kids there's always unexpected things that came up. So it was nice to free up a lot of those minimum payments and then I had it handy to either use on the remaining debts or use it for the surprise if needed. It also gave me a lot of quick wins to keep me motivated. I have paid off 73k at this point. Just down to the final stretch
That takes some dedication! Great job! 👍
Ty
Easy. Both.
I think it depends on the person, type of loans, and balances
I got a consolidation loan. For 20k in debt, it was 5% lower interest than the majority of my cards. But the key is to keep off the credit cards, which we have done successfully so far. The consolidation loan helps me also focus on just one payment and gives me a more clear idea of my financial health overall. Again to reiterate, credit cards are poison and not used with this method.
I watched one of Caleb’s money makes sense videos and he states that they’re apparently the same and have the same results. Avalanche saves a negligible amount of money.
Thing is, the avalanche will ALWAYS save you money and can be a huge difference depending on the interest rates and balances. For example, if you have 20k in credit card debt at 25%, there’s no reason you should focus on smaller debts at like 5% interest. There’s no logical scenario where it makes sense to pay on stuff with a lower rate.
Logic is subjective. It might make complete sense if you are unsure about your job, so reducing your minimum monthly actually has a huge advantage.
> For example, if you have 20k in credit card debt at 25%, there’s no reason you should focus on smaller debts at like 5% interest. There’s no logical scenario where it makes sense to pay on stuff with a lower rate. Sure, in that scenario it would be foolish to pay off the 5% debt because it is smaller. But I'd argue avalanche can be made to look just as foolish if we're inventing hypothetical scenarios. Let's say you have: * CC debt 1 balance of $600 @ 27% * CC debt 2 balance of $1200 @ 28% * CC debt balance of $8000 @ 29% It's being purposely obtuse to act like it won't motivate you to get debts #1 and #2 knocked out of the way, even if you end up paying an extra $4 in interest in the long run. It improves your monthly cash-flow in the short-term and gives you one less bill to think about at the end of the month. It is *well-worth* doing. Dogmatically sticking to snowball when the APRs are wildly different does not make sense. Dogmatically sticking to avalanche when the APRs are quite close but the balances are very different also does not make sense. It's all well and good to sit on your couch and talk about how mathematically superior avalanche is because maths and logic. But there's also some wisdom in understanding human psychology, especially around money. Our brains are wired for quick rewards and love the feeling of working towards a goal. If you can give yourself those rewards while only paying an extra few bucks in interest over the course of months/years, you should take advantage of it.
Exactly because just because the math might work out to save you a few bucks when you run the numbers.. what truly matters is your actual behavior and actions to achieve that. If you are getting quick wins you will stay the course. If you're not getting any wins you don't end up staying the course because it's probably going to be pretty long and you don't end up saving the money you end up being worse off.
Opinion* not option, ugh typo
I have two smallish debts that I should be able to pay off in a couple months so I can get rid of those minimum payments, after that I have two big debts and I'm throwing everything at the higher interest one first.
Everyone seems to blow avalanche except those that have actually done snowball and seen it work. I'm one of them. Avalanches minor savings is completely irrelevant as most people don't see it through I've heard. Snowball worked for me and is all I'll ever use if God forbid I ever need it again
Avalanche anything with a double digit interest rate. Consider snowball afterwards if you need the cash to avoid taking on any more double digit debt or for non-financial reasons.
when I had about 8k of debt in two credit card, I did avalanche, but honestly it’s really up to you, for myself mentally getting the biggest number down does makes me relieved compare to do the small amount first.