Managing debt can feel challenging, but choosing the right approach can make a major difference to your financial progress. Two popular repayment strategies are the Debt Avalanche and Debt Snowball methods. Both aim to help you become debt-free, but they work in different ways.
The Debt Avalanche focuses on clearing high-interest loans first, helping you save more money over time. In contrast, the Debt Snowball targets smaller balances to deliver quick psychological wins and steady motivation. Each method offers unique benefits, and the best choice depends on your financial priorities and the discipline you can maintain.
This guide breaks down both strategies so you can identify which one fits your situation best.
What Is Debt Avalanche?
The Debt Avalanche method prioritises clearing the loan with the highest interest rate while making minimum payments on others. Once the highest-interest loan is cleared, you apply the same approach to the next highest-interest debt.
Example:
Suppose you have three debts:
Credit Card: Rs 24,000 at 25% interest (Minimum Payment: Rs 750)
Personal Loan: Rs 36,000 at 12% interest (Minimum Payment: Rs 540)
Consumer Loan: Rs 18,000 at 8% interest (Minimum Payment: Rs 1,000)
If you have Rs 3,000 to allocate monthly, you will:
Pay the minimum amount on all loans.
Direct the remaining Rs 710 towards the credit card, which has the highest interest.
Once the credit card is cleared, focus on the personal loan, then the consumer loan.
Outcome:
Using the Debt Avalanche, you will clear all debts in 24 months and save Rs 4,200 in interest compared to a traditional repayment schedule.
Benefits:
- Saves Money: Significantly reduces interest payments over time.
- Quicker Debt-Free Goal: Depending on debt structure, you may achieve freedom faster.
- Ideal for Budget Planners: Appeals to those prioritising financial efficiency.
Drawbacks:
- Requires Patience: Early savings may not feel noticeable, which can affect motivation.
- Needs Extra Income: Success relies on having funds beyond minimum payments.
- Narrow Focus: Does not account for emotional or other practical factors.
What Is Debt Snowball?
The Debt Snowball method pays off debts from smallest to largest, regardless of interest rates. This creates quick wins that help sustain motivation.
Example:
Using the same loans as above:
- Pay minimum amounts on all loans.
- Direct the extra Rs 710 towards the consumer loan (smallest balance).
- After clearing the consumer loan, focus on the credit card, then the personal loan.
Outcome:
Under this method, you will become debt-free in 25 months but save Rs 3,700 in interest — Rs 500 less than the Debt Avalanche method.
Benefits:
- Easy to Implement: Ordering debts by size is simpler than calculating interest priorities.
- Boosts Motivation: Quick wins help build confidence and momentum.
Drawbacks:
- Costs More: You will likely pay more in interest over time.
- Slower Timeline: Clearing high-interest debts last extends repayment duration.
Which Method Should You Choose?
Both methods aim to eliminate debt, but the better choice depends on your circumstances:
- Choose Debt Avalanche if your goal is to save money on interest and you can maintain long-term discipline.
- Choose Debt Snowball if smaller wins will keep you motivated to stay consistent.
Wrapping Up
Debt Avalanche and Debt Snowball are both proven strategies for reducing debt. The right option depends on whether you value interest savings or motivational milestones.
If you prefer maximum savings and long-term efficiency, the Avalanche method fits better. If quick wins help you stay committed, the Snowball method may be more effective. What matters most is consistency, choosing a plan, sticking to it, and adjusting as needed.
With the right strategy, steady effort, and a clear goal, becoming debt-free is absolutely achievable.
*This article is for informational purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
