When eliminating multiple credit cards, auto loans, and personal debts, borrowers face a key strategic decision: pay off smallest balances first (Snowball) or highest interest rates first (Avalanche)?
Debt Avalanche: The Pure Mathematical Champion
Order debts from highest APR to lowest APR. By aggressively attacking high-interest credit card debt (e.g. 24% APR) first, you minimize total lifetime interest paid to lenders.
Debt Snowball: The Behavioral Psychology Winner
Order debts from smallest balance to largest balance regardless of rate. Clearing a small $600 medical bill in two months provides quick psychological momentum that prevents borrowers from abandoning their plan.
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Frequently Asked Questions
How much money does the Avalanche method save?
On $30,000 of mixed debt across credit cards and personal loans, the Avalanche method typically saves between $1,500 and $4,000 in interest over the Snowball method.