Jul 28 2023

Debt snowball or avalanche: Which is better?


Debt snowball and debt avalanche are two popular paydown methods. See which one is right for you.

If you’re working on paying down debt, you’ve probably heard of two well-known strategies: debt snowball and debt avalanche. While both can be used to help pay off debt faster, they work in different ways. The debt snowball method involves paying off your smallest debts first, whereas the debt avalanche method tackles debts with the highest interest rate.

With levels of household debt increasing, managing debt remains a top concern for today’s homebuyers. Finding an effective debt paydown strategy may help put homeownership in reach, making it easier to save for a down payment while also positively impacting the mortgage rate you qualify for.

Debt snowball vs. debt avalanche: Which works best?

Here are some of the pros and cons of the debt snowball method—and how to use it:

How it works:

  • Made popular by Dave Ramsey, the debt snowball method prioritizes paying off your smallest debts first, while continuing to pay the minimum balance on all others.
  • Once you pay off your smallest debt, you then move on to the next smallest. Continue this until all debts are paid.

Debt snowball pros:

  • You’ll see quick progress, making it easier to stick to the strategy.
  • It’s fairly simple to plan and track payoffs. This is especially true when using a debt snowball calculator, like the one created by Dave Ramsey.
  • It can provide more traction and free up more monthly cash flow for those who have multiple low-interest debts.

Debt snowball cons:

  • It’s less likely to save you on long-term interest.
  • Paying down total debt may take longer as interest accumulates.

Bottom line: The whole point of the debt snowball method is to knock out smaller debts so you can start gaining momentum, just like a snowball rolling down a hill. Debt snowball can be a user-friendly strategy for anyone who’s juggling several debts. It can be particularly satisfying if you like seeing progress and crossing debts off your list.

Good to know: Your debt-to-income (DTI) ratio is calculated by dividing all your monthly debt payments by your gross monthly income. This debt ratio is used to help measure your ability to manage monthly payments when qualifying for a mortgage.  

Is your DTI helping or hurting you when it comes to buying a house?

Your local Academy Loan Officer can help you find out.

Here are some of the pros and cons of the debt avalanche method—and how to use it:

How it works:

  • Also called “debt stacking,” the debt avalanche method prioritizes paying off your highest-interest debt first, while continuing to pay the minimum balance on all others.
  • Once you pay off your highest-interest debt, you then move on to the next highest. Continue this until all debts are paid.

Debt avalanche pros:

  • You’re likely to save more money on interest over time.
  • You’ll get rid of larger debts—and potentially become debt-free—faster.
  • It can be useful for paying off big balances, especially when using a calculator like this.

Debt avalanche cons:

  • It can take much longer (months or years) to pay off your first debt.
  • It may not be the smartest choice if you have multiple low-interest debts.

Bottom line: As the name suggests, debt avalanche is intended to have an “avalanche effect” on your debts by tackling the balances with the most interest first. Due to recent Fed rate increases, the interest on many credit cards is going up. With this in mind, debt avalanche is likely to save you more in the long run. But it’s also possible you might lose motivation if it takes several years to see any progress in paying off your first debt.

So, which method wins? Does it make more sense to start with your smallest bill or highest interest rate? In this case, it comes down to priorities. If it’s your goal to save as much money on interest as possible, debt avalanche is your plan. However, if you want to stay in the game for longer by seeing quicker wins, debt snowball may be a better bet.

Knocking out debt using either strategy will require you to have extra funds. You might approach this by diverting money from your paycheck each month, cutting out streaming services and added expenses, selling a vehicle, using a tax return, or even starting a side hustle.

These savings strategies can also be useful when it comes time to save for a down payment and other homeownership costs.

Debt doesn’t have to be a four-letter word.

At least, not with Academy Mortgage. Contact your local Academy Loan Officer if you have concerns about how debt may impact your ability to qualify for a mortgage.

Please consult a trusted professional as personal circumstances may vary. No specific results are guaranteed. Not all applicants will qualify. MAC424-1486404.