Debt snowball vs debt avalanche: what does each method optimize?
The avalanche method optimises for lowest total interest by targeting the highest rate first. The snowball method optimises for motivation by clearing the smallest balance first. Research suggests small wins can help people stick with repayment, but neither method suits everyone.
What avalanche optimises
Total interest paid and, for the same monthly budget, typically the overall payoff time. It is the mathematically efficient choice.
What snowball optimises
Behavioural momentum. Clearing whole accounts quickly reduces the number of bills and can boost motivation.
The evidence
Gal and McShane (2012) found that consumers who closed more individual debt accounts were more likely to eliminate their debt, consistent with a small-wins effect. Kettle et al. (2016) found people tend to spread payments across debts rather than concentrating, which is less efficient.
Illustrative difference
When interest rates across debts are similar, the cost difference is small. When one debt has a much higher rate, avalanche can save noticeably more.
Interpretation
Choose the method you will maintain. Concentrating extra payments on one debt — by either rule — beats spreading them thinly.
Key Takeaways
- Avalanche minimises interest.
- Snowball builds momentum.
- Concentration beats spreading payments.
- The best method is the one you keep.
Frequently Asked Questions
Avalanche saves more interest; snowball may be easier to sustain. Both beat spreading payments.
Yes — clear one small balance for momentum, then switch to avalanche.
References
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