Avalanche vs snowball: what the payoff order actually costs

If you have more than one debt and a fixed amount to put toward them each month, the minimums get paid on all of them — the only real decision is which one gets the extra money. Two strategies dominate the advice: avalanche, meaning the highest interest rate first, and snowball, meaning the smallest balance first. They are not the same plan wearing two names; run the same debts through both and they produce different totals.

The method

Each month, in order: interest accrues on every unpaid balance, the minimum gets paid on every debt, and then everything left in the budget goes to one target debt — the first unpaid one in the chosen order. When that target clears, its old minimum doesn't disappear; it rolls onto the next target, so the amount attacking debt only grows as balances clear. Avalanche ranks the targets by rate, highest first. Snowball ranks them by balance, smallest first.

A real example: three debts, $400 a month

Three debts, $400 a month available in total:

• Card A: $1,000.00 at 24% APR, $50.00 minimum
• Card B: $500.00 at 12% APR, $25.00 minimum
• Car loan C: $2,000.00 at 6% APR, $100.00 minimum

Minimums total $175.00, leaving $225.00 a month to put at one target.

Avalanche: highest rate first (A, then B, then C)

Month 1: interest is $20.00 on A (2%/mo of $1,000), $5.00 on B (1%/mo of $500), $10.00 on C (0.5%/mo of $2,000). Minimums of $50 + $25 + $100 = $175 are paid, and the remaining $225 goes to A, so A is paid $275.00 that month. Running the full schedule: A clears in month 4, B in month 6, C in month 10. Total interest paid over the whole payoff: $138.04. Total paid: $3,638.04 — which is exactly the $3,500.00 of starting balances plus that $138.04 of interest, to the cent.

Snowball: smallest balance first (B, then A, then C)

Same debts, same $400 a month, but the $225 extra goes to B (the smallest balance) instead of A. B is paid $250.00 in month 1 ($25 minimum + $225 extra). Running the schedule: B clears in month 3, A in month 6, C in month 10. Total interest: $154.64. Total paid: $3,654.64.

The difference, stated plainly

Both strategies clear every debt in the same 10 months here — the car loan is the largest balance either way, so it sets the finish line regardless of which order the other two are attacked in. What differs is the interest: $154.64 − $138.04 = $16.60. Snowball costs $16.60 more over the payoff in exchange for clearing the smaller card a full month sooner (month 3 instead of month 4). Avalanche is mathematically never worse on interest, because it always attacks the balance that's charging the most first; snowball's edge is psychological — a balance disappears sooner, which is why some people find it easier to stick with.

Why the gap can be much bigger than $16.60

This example's debts are close in rate (24%, 12%, 6%) and small in size, so the gap is small. The same arithmetic run on, say, a $6,000 balance at 27% sitting next to a $1,500 balance at 9% produces a far larger avalanche/snowball gap, because the strategies disagree more sharply about which balance deserves the money first when the rates are further apart. There's no way to know your own number without running your own debts through both orders — which is the entire point of doing the arithmetic rather than picking a strategy by its name.

What this doesn't decide for you

The math says which order costs less. It doesn't say which order you'll actually keep to for the next 10 months (or the next several years, on real-world balances). A cheaper plan abandoned in month 4 does worse than a more expensive plan finished on schedule, and only you know which of those you are.

Run your own numbers

The free Debt Payoff Order calculator takes a pasted list of your own debts — name, balance, rate, minimum — and simulates both strategies (plus any custom order) month by month, entirely on your device.