There is a lot of support for the Snowball Method, including an abundance of success stories of people using this method to pay off their debt. But what about the Avalanche Method?
When you search for “Avalanche Method” or “Debt Avalanche,” there are very few articles solely about this method. The majority of what you will find are comparisons to the Snowball Method. Why is that the case?
These are things I frequently think to myself when I’m looking at Pinterest or Googling pay-down techniques. I love the Avalanche Method and it’s worked very well for me over the past two years.
The Avalanche Method, or Debt Avalanche, has many distinct positives. You pay less interest, less money overall, and it takes less time! What’s not to love?!
These are the primary reasons for my decision to use this approach instead of the Debt Snowball. Also, my super-nerd husband refers to it as “the mathematically superior” method.
What is the Avalanche Method?
Essentially, the Avalanche Method is debt repayment plan that has you list your debts from highest interest rate to lowest interest rate. Then you apply all additional money possible towards the loan with the highest interest rate (while continuing to pay the minimum on all other loans/debts).
If you approach repaying your debts with this approach, you’ll save:
- Interest (more money!)
Sounds like a good plan, right?
I’ve mentioned before that I have approximately $80,000 in debt between my mortgage and my student loans. These are the only debt that I have and both loans are quite sizable. Because I don’t have any “small” debts, there really isn’t much of a point for me to utilize the Snowball Method. Either way I go, it will take substantial time to pay off either loan.
When I originally started paying on my student loans, I started by using the Snowball Method. Then I downloaded this amazing spreadsheet and compared the difference in time and overall cost between the methods. After looking at both, I quickly changed my practice.
Switching from the Snowball Method to the Avalanche Method allowed me to pay off my loan with the highest interest rate (7.9%) in less than a year. It also saved me about $3,000 interest from that loan alone. That was plenty of reason for me to change.
After I chose to refinance my student loans, my loans were consolidated into a single loan for approximately $41,000. My mortgage was around $41,000. With those numbers, you can see how the decision was pretty easy.
Both my loans were about the same amount and would like about 2 years to pay off the first loan. So does it really make sense for me to pay off our house with a lower interest first because I owed less on it at the time?
There’s a 1% difference between my loans. While that doesn’t sound so bad, 1% interest on $41,000 is $410. No thanks, I’ll pass.
So that’s my story with choosing to switch from the Snowball Method to the Avalanche Method and the money it has saved me (and will continue to save me).
- The Avalanche Method takes less time to pay off all debts.
- It also allows you to pay the least amount of interest possible over the life of all your loans.
- Switching from the Snowball Method to the Avalanche Method saved me $3,000 interest on a single loan.
- Even a small interest rate difference like 1% can be a $400 difference.
- If you have larger debts, you already know you’re in for the long-haul anyways.
- Download this spreadsheet.
While my story might be a bit different from yours, I hope you at least consider downloading the above spreadsheet to look at how switching can change your repayment experience/cost/expected time.
What are your thoughts on the Avalanche Method?