Carrying debt can feel heavy, especially when interest keeps adding to what you owe every month. The good news is that you do not need a huge income to get out of debt faster. You need a clear plan and consistency. In this guide we compare the two most popular payoff strategies, the debt snowball and the debt avalanche, and show you how to choose between them.
Step 1: List Every Debt
Write down each debt with three details: the current balance, the interest rate (APR) and the minimum monthly payment. Include credit cards, personal loans, car loans and student loans. Seeing the whole picture in one place is the first real step toward control.
Step 2: Always Pay the Minimums
Whichever strategy you pick, keep making the minimum payment on every debt. Missing payments leads to late fees, higher interest and damage to your credit profile. The strategies below are about where to send your extra money.
The Debt Avalanche Method
With the avalanche method you put all your extra money toward the debt with the highest interest rate, while paying minimums on the rest. When that debt is gone, you move to the one with the next highest rate.
- Pros: It costs the least in total interest and usually gets you debt-free sooner in terms of money spent.
- Cons: If your highest-rate debt is also a large balance, it can take a long time to see your first debt disappear, which can feel discouraging.
The Debt Snowball Method
With the snowball method you put all your extra money toward the debt with the smallest balance, regardless of interest rate. When it is paid off, you roll its payment into the next smallest balance, and so on. Your payment grows like a snowball rolling downhill.
- Pros: You score quick wins, which builds motivation. Many people stick with this plan better.
- Cons: You may pay somewhat more interest overall than with the avalanche method.
Which Method Should You Choose?
| If you... | Choose |
|---|---|
| Want to save the most money | Avalanche |
| Need early wins to stay motivated | Snowball |
| Have one debt with a very high rate | Avalanche |
| Have several small debts | Snowball |
The best plan is the one you will actually follow. A method you keep for three years beats a perfect method you abandon after three months.
Ways to Find Extra Money
- Review subscriptions and cancel the ones you rarely use.
- Put bonuses, tax refunds and side income straight toward debt.
- Round up your payments, even a small amount each month adds up.
- Ask your lender whether a lower rate or a consolidation loan is available. Compare the full cost first, including fees.
See What Your Loan Really Costs
Want to see how a loan's rate and term affect your payment? Try our Loan EMI Calculator and test how a shorter term changes your total interest.
Frequently Asked Questions
Should I save money or pay off debt first?
Many people build a small starter emergency fund first so that a surprise bill does not push them back into debt, then focus on paying off debt. See our guide on how much emergency fund you need.
Does paying extra on a loan always help?
Usually yes, because extra money reduces principal and therefore future interest. Check first that your lender does not charge a prepayment penalty.
Is debt consolidation a good idea?
It can be, if the new loan has a lower interest rate and reasonable fees, and if you do not run up new debt afterward. Always compare the total cost, not just the monthly payment.
Disclaimer: This article is for general information only and is not financial advice. Your situation may differ, so consider speaking with a qualified financial professional.