Avalanche, Snowball, and What Actually Gets Debt Paid

The debate is well-worn. Avalanche says pay the highest interest rate first, because that minimises total interest. Snowball says pay the smallest balance first, because closing an account is motivating. Avalanche is correct on arithmetic. Snowball is frequently correct on outcomes.

The size of the disagreement

It is smaller than the internet suggests. For a typical mix of consumer balances, the total interest difference between the two methods over a full payoff often amounts to a few percent of the debt — real money, but not usually the difference between success and failure. The difference in completion rate is larger.

A method you abandon in month four has an effective interest rate of infinity.

Research from behavioural economists — most notably work by Gal and McShane on consumer debt accounts — has found that closing individual accounts, rather than reducing total balance, is the better predictor of eventual payoff. The mechanism appears to be a sense of progress: visible completed steps sustain effort in a way that a slowly shrinking aggregate does not.

A practical synthesis

1. List every debt — balance, rate, minimum payment. Most people have never seen the whole picture on one page, and the exercise itself changes behaviour.
2. Pay every minimum, always. Missed payments cost far more than method choice, through fees and credit damage.
3. If one rate is dramatically higher — a payday loan, a card at 30% — attack it first regardless of balance. The arithmetic is too lopsided to argue with.
4. Otherwise, clear one or two small balances first for the momentum, then switch to strict highest-rate order.
5. Roll every freed-up minimum payment into the next target. This is the part that does the actual work, and it is common to both methods.

The options people forget

Before optimising the order, check whether the rate itself is negotiable. Balance transfer offers, consolidation loans at a lower rate, and — for anyone genuinely struggling — non-profit credit counselling, which can often negotiate rate reductions directly with creditors. Moving a balance from 24% to 6% dwarfs any ordering decision.

And a caution: consolidation only helps if the underlying spending stops. Clearing cards with a loan and then re-running the balances is the most common way a good decision becomes a worse position.

Educational content, not financial advice. If you are in serious difficulty, a non-profit debt advice service is a better first call than any blog.