How to get out of debt: snowball or avalanche, and which one to pick

There are two methods that work for getting out of debt, and they've been argued about for years as if one were correct. Both are correct: they solve different problems.

But before picking a method there's a step almost nobody takes, and without it neither method works.

Step 0: put every debt on one sheet

You can't get out of something that hasn't been counted. For each debt, write down four things:

• What you owe today, not what you borrowed.
• The interest rate, annualised.
• The minimum payment each month.
• The due date each month.

Two things almost always happen when you finish that sheet. The first is that the total is different from the one in your head — higher or lower, but different. The second is that debts show up that you weren't counting as debt: the revolving card balance, the instalments on something bought eight months ago, money a friend lent you.

Then add up the minimums. That number has to fit in your month; if it doesn't, the problem is income or refinancing, and it needs solving before you pick any strategy.

The two methods

Avalanche. You pay the minimum on everything and every spare peso goes to the debt with the highest rate. When it's closed, that whole payment moves to the next most expensive one.

It's the mathematically optimal method: you pay less interest in total and you finish sooner. No argument.

Snowball. You pay the minimum on everything and every spare peso goes to the smallest debt, regardless of rate. When it's closed, that payment moves to the next smallest.

It costs more. And it's the one more people finish.

Which one is for you

The question isn't which saves more interest — that's already settled — but which one you'll keep up.

Pick avalanche if: the spread between your rates is wide (a credit card versus a personal loan, say), and you already sustain financial habits. There the difference in money is real and you'll capture it.

Pick snowball if: you have lots of small debts, or you've tried to get out before and quit. Closing an entire debt in two months does something no spreadsheet does: it shows you the system works. And a list of six debts becoming four feels different from a list of six that dropped 12%.

The honest shortcut: if all your debts carry similar rates, the two methods land in almost the same place. Use snowball, it's easier to sustain.

What you have to do either way

Stop adding new debt. A payoff plan while you're still funding the month on the card is a treadmill. If it helps, take the card out of your wallet and out of your browser.

Keep a minimum buffer before accelerating. One essential month saved, even if it delays the plan. Without it, the first surprise goes back on the card and the progress is erased. The calculation is in emergency fund.

Automate the payment on payday. What's left at month end isn't left.

Look at the total once a month, not every day. It's a number that moves slowly, and checking it constantly only generates anxiety.

Refinancing: when it makes sense

Consolidating several debts into one cheaper loan makes sense only if the new rate is lower than the weighted average of the ones you're closing, and only if you stop using the cards you freed up.

The classic refinancing failure isn't the rate: it's ending up with the new loan plus the cards carrying balances again six months later. If you're not confident about that second part, refinancing makes your position worse.

Once you're out

The monthly payment you'd been making is already in your budget and you're already used to not having it. Redirect the whole thing — on the day you close the last debt — into your emergency fund and then into savings. It's the moment when it's easiest to do, and the only one where it doesn't feel like a cut.

In one line

Count everything first, stop adding debt, save one essential month before accelerating, and pick snowball unless your rates are far apart. The best method is the one you finish.

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