Short answer: both methods pay the minimum on every debt and put any extra money toward one debt at a time. The avalanche picks the highest interest rate first; the snowball picks the smallest balance first. The CFPB links the first to saving the most money and the second to seeing progress quickly. In the example below, the avalanche costs $177.82 less in interest. This is general information, not financial advice.
The CFPB guidance quoted here is from an archived 2019 blog post. The CFPB notes that the information on archived pages may be outdated.
The two methods in the CFPB’s words
- Highest interest rate method (the avalanche): “The goal is to pay off the highest interest rate debt as quickly as possible, because it’s costing you the most” (CFPB, archived 2019 blog).
- Snowball method: “You keep on making the minimum payments on all of your debts, and you put any extra funds you have toward paying off the smallest debt.” Once one is paid off, that money goes to the next smallest debt (CFPB).
- Choosing: “If you’re motivated by saving the most money while still paying off your debts, the highest interest rate method might be the right choice for you. However, if you’re motivated by seeing progress quickly, then you may want to consider the snowball method” (CFPB).
A worked example, only for the math
These three debts are made up only for the math. The example pays $350 a month in total, charges each debt its APR divided by 12 on the balance every month, and keeps each minimum payment fixed. Real cards and loans figure interest and minimums in their own ways.
| Debt | Balance | APR | Minimum payment |
|---|---|---|---|
| Debt A | $800.00 | 9.00% | $40.00 |
| Debt B | $3,000.00 | 24.00% | $90.00 |
| Debt C | $1,800.00 | 18.00% | $55.00 |
The minimums add up to $185.00, so $165.00 a month is extra. The snowball sends the extra to A, then C, then B. The avalanche sends it to B, then C, then A. When a debt is paid off, its minimum joins the extra.
| Snowball | Avalanche | |
|---|---|---|
| First debt paid off | Debt A, month 4 | Debt B, month 14 |
| Months to pay off all three | 20 | 19 |
| Total interest | $1,088.36 | $910.54 |
| Total paid ($5,600.00 + interest) | $6,688.36 | $6,510.54 |
$1,088.36 − $910.54 = $177.82. With other balances, rates or payments, the gap can be larger, smaller or zero, so run your own numbers. The CFPB offers a debt reduction worksheet for this (CFPB).
When combining debts may fit
A consolidation loan or a balance transfer replaces several payments with one. It lowers your interest only if its APR and fees cost less than the debts it pays off, and only if you do not run the paid-off cards back up. Compare:
- Debt consolidation loans with bad credit
- Balance transfer card vs personal loan
- Debt management plan vs consolidation loan, through a nonprofit credit counselor
- What paying only the minimum costs
Checklist
- List every debt with its balance, APR and minimum payment.
- Keep paying every minimum on time.
- Pick an order: highest APR first to save interest, or smallest balance first to see progress quickly.
- Move each paid-off payment to the next debt.
- Check whether a lower-APR consolidation or a credit counselor fits before you borrow.
Before you add a new payment, see how to budget for a loan payment.
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Sources
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.