Debt snowball vs. avalanche: What’s the best way to pay off debt?

By choosing to tackle your debt, you’ve taken your first step towards becoming financially independent. While it’s not always an easy thing to do, there's light at the end of the tunnel! There are two simple strategies you can use to get out of debt and take control of your finances: the debt snowball and the debt avalanche methods. 

Selecting the right approach for you depends mostly on your personality and situation. To make an informed decision about which is the strategy you want to use, here’s our guide on everything you need to know about the debt snowball vs. debt avalanche methods. Let’s go!

Both the debt snowball and debt avalanche methods require you to make the minimum repayment on all of your debts (with one exception). The key difference between the two approaches is which one of your debts you decide to pay off first. 

With the debt snowball method, you pay off your smallest debt first and work your way up from there. With the debt avalanche method, you pay off your debt with the highest interest rate first. Then you focus on paying off the debt with the next highest interest rate until all your debts are paid in full. Both approaches come with their pros and cons—here they are at a glance:

Budgeting made simple

N26 Spaces sub-accounts make it easy to set money aside for your goals in just a few taps.

Get sub-accounts in minutes (new tab)

Pros:

• Simple to get started with.
• More motivating as debts seem to be paid off quicker.

Cons:

• You can lose more money in the long term due to the higher interest rates of your unpaid debts.
• It can take longer to pay off all your debts due to not tackling those with the higher interest rates first.

Pros:

• More money is saved in interest in the long term. 
• Debts can be paid off more quickly overall.

Cons:

• Requires discipline as there’s often no ‘quick wins’ with this approach.
• Easy to become demotivated and stop paying off debts altogether.

The debt snowball method is all about giving you a sense of achievement and financial empowerment as quickly as possible. This helps you stick to your debt repayment plan, making you feel motivated and rewarded for your efforts. It focuses on tackling your smallest debts first—regardless of their interest rates. 

The debt snowball method requires you to make the minimum payments on all of your outstanding debts each month. Once you’re paying the minimum each month, you then use any surplus cash to pay off your smallest debt first. Once that’s paid off, you then target the next smallest, gradually ‘snowballing’ until you pay off your last—and largest—remaining debt.

1. Make a list of all your debt repayments. 
2. Put them in order from the smallest to the largest in terms of the amount owed.
3. Track your spending to ensure you have enough to pay off the minimum payment for all of your outstanding debts.
4. Create a budget to free up some extra cash each month. The 50/30/20 budgeting model is a good place to start.
5. Put any surplus money towards paying off your smallest outstanding debt.
6. Once this is paid off, target your next-smallest debt.
7. Keep doing this until you’ve paid off all of your debts.
8. Maintain your healthy budgeting habits and consider saving up for an emergency fund.

Imagine that after you’ve paid the minimum payments for all your outstanding debts each month, you have €500 surplus cash left over. You have the following debts to repay:

• €15,000 student loan with a 3.0% APR interest rate
• €3,000 loan from a family member with a 0.0% interest rate
• €6,000 credit card debt with a 24% APR interest rate

Here’s how you’d tackle these debts using the snowball method:

1. You’d start by paying off your €3,000 debt to your family member as it’s the smallest debt owed. At €500 a month, this would take six months. 
2. Next, you’d tackle your €6,000 credit card debt. Taking the 24% APR interest rate and the six months it’s taken you to pay off your family member into account, this debt has now accumulated €756 in interest. So, you now have €6756 to pay off. Including the 24% APR (which amounts to about 2% interest per month), this takes 15 months to settle.
3. Lastly, you’d tackle your €15,000 student loan. Since it’s now taken you 21 months to pay off your family member and your credit card debts, you’ve accumulated €807 in additional interest on this loan. So, at €500 a month, and with a 3% APR interest rate, paying back the outstanding €15,807 would take 33 months. 

In total, using the snowball method, with €500 in surplus savings a month, you would pay off roughly €27,000 (all debts combined inc. interest) in debt in 4.5 years. If that seems like a long time, if you doubled your savings to €1000 a month, you could do this in close to two years, as the interest would have less time to accumulate.

The debt avalanche method, also known as debt stacking, is a more mathematically sound approach than the debt snowball approach. As a result, it focuses on tackling debt by paying the least amount of interest where possible. While this means it can take a while to pay off your first debt, it means saving the most money in the long run. 

Like the debt snowball method, you can only start using the debt avalanche method once you meet the minimum payback requirements for all your outstanding debts. From here, you use any extra cash each month to pay off your debt with the highest interest rate first. Then, you move on to the debt with the next highest interest rate until you pay off your last remaining debt, which will have the lowest interest rate of them all.

1. Make a list of all your outstanding debt repayments. 
2. Order each debt from the highest to the lowest according to interest rate.
3. Keep track of your spending habits to ensure you can pay off the minimum threshold for all of your outstanding debts.
4. Create a budget to free up some extra cash each month. The 50/30/20 budget is a great method for first-time budgeters.
5. Contribute your extra cash each month towards paying off your debt with the highest interest rate.
6. Once this is paid off, target the debt with the next highest interest rate.
7. Keep doing this until you’ve paid off all of your debts.
8. Keep up your healthy financial habits and consider creating a personal financial plan to help you reach financial independence.

Taking the same example from the debt snowball method above, imagine that you have an extra €500 a month to pay off your debts (after meeting the minimum payment threshold requirements for all outstanding debts) and you have the same debts from the example above:

• €15,000 student loan with a 3.0% APR interest rate

• €6,000 credit card debt with a 24% APR interest rate
• €3,000 loan from a family member with a 0.0% interest rate


Using the debt avalanche method, here’s how you’d pay off these debts:

1. You’d first focus on paying off your €6,000 credit card debt, as this has the highest interest rate. Taking the 24% APR interest into account, this would take you around 13.5 months.
2. Next, you’d tackle your €15,000 student loan as this has the next highest interest rate of 3.0% APR. Considering the 13.5 months it’s taken you to pay off your credit card debt, your loan has now accumulated an additional €504 in interest. So, this will take you roughly 32 months to pay off.
3. Lastly, you’d take on your €3000 loan from a family member that has a 0.0% interest rate. This will take you six months.

In total, using the debt avalanche method, with €500 in additional debt-repayments a month, you would pay off roughly €25,750 (all your debts combined inc. interest) in outstanding debt in 4.3 years. That’s two months quicker than if you used the debt snowball method, and €1,250 cheaper as this is how much you’d save in accumulated interest. 

If 4.3 years seems like a dishearteningly long time, if you again bumped your savings up to €1000 a month, you could pay off all your debts in close to two years as your interest would have even less time to accumulate!

Budgeting made easy

Visualize your daily expenses and savings to help you make the most out of your money.

Try the budgeting calculator

Deciding which approach to take depends on your personality. Take a few minutes to consider what motivates you to stick to a habit. At the end of the day, it’s the method that you stick to for the longest that’s the best for you. When it comes to paying off debt, the most important thing is to keep at it. Getting demotivated and giving up early will only hurt you—and your bank balance—in the long run.

If you find quick wins and a feeling of tangible, early progress motivating, the debt snowball method may be better for you. Instant gratification can be a powerful tool for good if we can use it to trick ourselves into keeping good habits. On paper, the debt avalanche method does save you more money and more time. However, this is redundant if you’ve given up on making debt repayments altogether because the number of debts you owe still feels overwhelming months down the line. 

The debt snowball method’s biggest advantage is that it gives you a sense of progress and independence as you strike debts off your list. Regardless of the increased cumulative interest, this taste of financial empowerment may be just the tool you need to become debt-free. 

However, if you’re more motivated by optimizing processes and saving money (and time), you might be more aligned with the debt avalanche method. If you were to follow the snowball method, you may become demotivated knowing that you’re losing money each month on avoidable interest charges. Instead, you could draw your motivation from the knowledge that you’re spending the least amount in unnecessary interest each month. Plus, with the debt avalanche method, you’ll be debt-free quicker!

The bank you'll love

✓ 100% mobile ✓ No hidden fees ✓ No paperwork ✓ Free virtual Mastercard ✓ Free ATM withdrawals

Get started (new tab)

At N26, tracking your spending is simple and automatic. Know exactly where your money is going every month with Statistics, the feature that presents your monthly spending at a glance. And, as a premium customer, enjoy up to 10 Spaces sub-accounts. These virtual piggy banks sit alongside your savings account and allow you to set money aside each month. Turn on Round Ups to round all your card purchases up to the nearest euro, and deposit the difference into the space of your choice. Choose the right plan for you today, and discover how N26 can help you reach financial freedom.

The content in this article is accurate to the best of our knowledge when posted. It does not constitute professional financial advice. If you require professional advice for your individual financial situation, please contact a certified/chartered financial advisor.