Snowballs and Avalanches: 2 Popular Ways to Pay Off Credit Card Debt

Trying to pay off large amounts of credit card debt can feel overwhelming, especially if you only make minimum payments on your accounts. But it can be done. The key is to accelerate your payments by paying more than the minimum so your balance goes down faster.

There are two popular methods to doing this: the debt snowball and debt avalanche methods. Although similar, there are key differences to consider when evaluating what works best for your personal circumstances.

Let’s take a look at how each method works.

What is the Debt Snowball Method?

The debt snowball method involves paying off your credit card balances from smallest to largest, thus gaining momentum with each paid-off card until you’re completely debt-free.

Here’s a quick overview of how the debt snowball method works:

1. List all your credit cards by balance from smallest to largest. Don’t worry about interest rates.
2. Pay as much as you can on your smallest balance while still making minimum payments on your other cards.
3. When you pay off your smallest balance, snowball your payment onto the next-smallest debt.
4. Repeat the process until you are debt-free.

The best way to understand the debt snowball method is with an example. So, let’s say you have four credit cards with the following balances and payments:

1. $300 balance with a $50 payment
2. $1,500 balance with a $75 payment
3. $3,000 balance with a $200 payment
4. $5,000 balance with a $100 payment

You would make minimum payments on all your credit cards except for the one with the $300 balance because it is the smallest. Reviewing your budget, you find an extra $100 to put toward your debt in addition to the minimum payment. By paying that $100 and the $50 minimum, you pay off that $300 credit card balance in two months.

Now you take that freed-up $150 and apply it to the $75 minimum on your credit card with the $1,500 balance, which after two months of minimum payments now has a balance of roughly $1,350. By paying $225, you’ll pay off that card in approximately 6 months. Next, that $225 snowballs onto the $200 credit card with the $3,000 balance and after paying $425 for another 3 months, that balance is paid off. Finally, combining the $425 with the $100 payment on your last remaining credit card bill, you apply $525 to your credit card balance and will be debt-free within another 7 months.

Shouldn’t I Pay Off the Credit Card With the Highest Interest Rate First?

In most cases, focusing on the credit card with the highest interest rate and balance makes sense to avoid paying more interest than necessary. But the debt snowball method is about earning little wins by paying off smaller credit card debts quickly, building momentum to stay focused on getting out of debt.

If you want to limit the amount you pay in interest as you pay off your credit cards, the debt avalanche method is here for you.

What is the Debt Avalanche Method?

The mechanics of the debt avalanche method are the same as its snowball cousin. With the debt avalanche method, you focus on making extra payments on one credit card balance at a time while paying minimums on others. But the difference between the two methods is in which credit card debts you target first and in what order.

In the debt avalanche method, you pay off your credit card debt in order from highest interest rate to lowest interest rate.

Here’s a quick overview of how the debt avalanche method works:

1. List all your credit card debts by interest rate, regardless of balance.
2. Pay as much as you can on your credit card with the highest interest rate while still making minimum payments on your other balances.
3. When you pay off your highest-interest card, roll your payment onto the credit card with the next-highest rate.
4. Repeat the process until you are debt-free.

Let’s take a look at how the debt avalanche method might work with the example of four credit cards with varying balances and interest rates:

1. $1,000 balance with a $75 payment and 18.99% interest rate
2. $5,000 balance with a $100 payment and a 15.99% interest rate
3. $13,000 balance with a $200 payment and 14.65% interest rate
4. $6,000 balance with a $150 payment and 10.99% interest rate

With the debt avalanche method, you would pay down the $1,000 credit card with the 18.99% interest rate first then move onto the next card with a 15.99% rate and so on, until you are debt-free.

Should I Use the Snowball or Avalanche Method to Pay Off My Credit Cards?

While the debt avalanche method makes sense from a math perspective, for people with higher amounts of credit card debt, it may take a while before they feel like they’re making progress.

The snowball method, on the other hand, feeds the human need for instant gratification. By paying off your smaller credit card debts first, it builds motivation. Because you see results more quickly, you’re encouraged to keep going and stick to your payoff plan.

Regardless of which method you choose, it’s important to pay every bill, on time, every month. With discipline and focus, you will be able to pay off your credit card debt.

And while they are two of the most popular ways to pay off credit cards, the debt snowball and avalanche methods are only two of the many ways to get out of debt. Ultimately, you should use an approach that works for you and your personal situation.