Which Debt to Pay First: Snowball versus Avalanche

• Avalanche: pay the minimum on everything, then throw all surplus at the highest-interest debt; once cleared, move to the next highest.
• Snowball: clear the smallest balance first, then roll that payment into the next debt.

Both assume every minimum is paid on time — penalties and credit damage swamp any strategic gain.

Three debts:

• Student loan 5,000 @ 6% (smallest balance, lowest rate)
• Credit card 20,000 @ 20% (highest rate)
• Car loan 60,000 @ 7%

Monthly interest alone: card 20000 × 20% ÷ 12 ≈ 333, student loan 5000 × 6% ÷ 12 = 25, car 350.

With 4,000 of surplus a month, the avalanche clears the card first and drops interest by 333 immediately; the snowball clears the student loan first and saves only 25. Clearing that small loan takes about two months — the difference is interest paid for nothing.

The avalanche can never lose on total interest — that is provable. But the snowball has a real advantage: clearing one debt quickly delivers a sense of completion that keeps people going.

The practical conclusion: if you can follow a plan strictly, use the avalanche; if you have abandoned plans before, the snowball’s early wins are more likely to get you to zero. The best strategy is the one you finish.

• Delinquent or in collections: handle first — penalties, credit and legal risk outrank any rate ordering.
• Secured debt: losing a car or home is worse than a card balance; protect these when cash is tight.
• Rate negotiation or balance transfer: moving a 20% card balance often beats any repayment order.
• Very low long-term rate (≤3%): pay the minimum and put surplus toward an emergency fund or investing.

• Minimum payments only: a 20% card balance can take over a decade to clear, with interest exceeding principal.
• Confusing payment size with rate: a big monthly payment does not mean a high rate — sort by rate, not by payment.
• Adding new debt while repaying: no strategy fixes a hole that keeps growing. Stop new borrowing first.