Debt Snowball vs. Debt Avalanche: Which Repayment Method is Right for You?

Debt can feel like a heavyweight holding you back from financial freedom. If you're ready to eliminate debt, you’ve likely come across two popular repayment strategies: the Debt Snowball and the Debt Avalanche. Both methods can help you achieve a debt-free life, but which one is right for you? Let’s break it down!

What is the Debt Snowball Method?

The Debt Snowball method, popularized by Dave Ramsey, focuses on paying off debts from smallest to largest, regardless of interest rates. Here’s how it works:

1. List all your debts from smallest to largest balance.

2. Make the minimum payments on all debts except the smallest.

3. Throw any extra money you have at the smallest debt until it’s gone.

4. Once the smallest debt is paid off, roll that payment into the next smallest debt.

5. Repeat the process until all debts are paid off!

Pros of the Debt Snowball

✅ Quick wins – Paying off smaller debts first provides motivation and momentum.
✅ Psychological boost – Seeing debts disappear encourages you to keep going.
✅ Simple and easy to follow – No need for complex calculations.

Cons of the Debt Snowball

❌ Might pay more interest over time – Since you ignore interest rates, you could end up paying extra in interest.
❌ Not the most mathematically efficient – If you have high-interest debt, it could take longer to pay off.

What is the Debt Avalanche Method?

The Debt Avalanche method is more focused on math and efficiency. Instead of tackling the smallest balance first, you prioritize debts with the highest interest rates. Here’s how it works:

1. List all your debts from highest to lowest interest rate.

2. Make the minimum payments on all debts except the one with the highest interest rate.

3. Use any extra money to pay off the highest-interest debt first.

4. Once the highest-interest debt is gone, move to the next highest.

5. Repeat the process until all debts are eliminated!

Pros of the Debt Avalanche

✅ Saves the most money – You’ll pay less in interest over time.
✅ Faster total payoff – Since less money goes toward interest, more goes toward principal.

Cons of the Debt Avalanche

❌ Takes longer to feel progress – Big debts with high interest can take a while to pay off.
❌ Less psychological motivation – If you thrive on small wins, this method may feel discouraging.

Which Debt Payoff Method Should You Choose?

Both methods work—what matters is which one will keep you motivated to become debt-free.

• Choose the Debt Snowball if you need motivation and momentum from quick wins. If paying off small debts gives you the encouragement to keep going, this is the best approach for you!

• Choose the Debt Avalanche if you’re focused on saving money and want to get out of debt as fast as possible. If you're disciplined and don’t need quick wins to stay motivated, this method will be the most cost-effective.

No matter which method you choose, the most important thing is to take action and stick with your plan. Your financial freedom is worth it!

💡 Need help getting started? Check out our Debt Payoff Tools at IWasBrokeNowImNot.com.

Should I Get A Home Equity Loan To Pay Off Debt?

One of the most common questions I am asked is:

"Should I get a home equity loan to pay off all of my non-house debt?"

Here is my response.

I am not a big fan of consolidating one's non-house debt into a home equity loan.  This is for several reasons, and I have outlined those reasons below.

• This is addressing a symptom, not the root cause.  This question is usually motivated by our need for immediate action.  It is the same motivation that causes us to purchase a car and finance it for five years.

• Borrowing from home equity makes it more difficult to sell the house.   This is especially true in today's house market.  There are a ton of people who now owe more on their house than it can be sold for.  Consequently, they become trapped in the house.

• Changing spending behavior is a process.  If one runs out and consolidates their debts, it might remove the urgency from the need to change spending behavior.  Changing one's spending behavior takes time.  I am convinced that if I had obtained a home equity debt consolidation loan in December 2002, I would not have changed my spending behavior.  However, because it took fourteen months to address our debt, our spending behavior was completely changed.  We have never looked back!

Having spoken with thousands of people and working one-on-one with thousands of individuals, I am convinced that obtaining a home equity loan is not the best way to eliminate debt.  The most common result from obtaining a home equity loan is less equity in the house and the consumer debt shows back up because the spending behavior was not changed.

This is, in fact, my own story.  I obtained a debt consolidation loan to move a pile of credit card and consumer debt to one payment.  After paying $315.60 a month for an eternity, I wanted to celebrate, but I could not.  Why?  Because while I had finally paid off the debt consolidation loan, I had not changed my spending behavior and my credit card debt had grown back to more than I had consolidated in the first place!

Be 100% Debt Free!

Picture this: a life where your hard-earned dollars aren't shackled to debt payments and mortgages. How much extra cash would you have in your pocket every month? We're talking about potential savings ranging from $1,000 to $3,000! Imagine the possibilities!

My friend and financial hero, David Bach, once said - ‘it's not just about choosing between prepaying a mortgage or investing in stocks and bonds. The real question is: which decision propels you toward financial freedom and an early retirement?’

Drawing from his 9 years at Morgan Stanley, David discovered something profound. Clients who fast-tracked their journey to being debt-free, especially by paying off their mortgages early, were retiring a solid 5 to 10 years earlier than others still struggling with debt. 

Let's break it down with some numbers. Take a $150,000 30-year mortgage with a 6.0% interest rate. 

The power of paying that off early is not just about numbers on paper; it's about reclaiming years of your life for the things that truly matter.

Are you looking for more resources? Dive into our free tools today!

2024 is the year we break barriers, shatter financial ceilings, and declare loud and clear - we are debt-free, and the house is officially ours!

Good Vs. Bad Debt

At IWBNIN, we talk a lot about reducing and eliminating debt. So this might come as a shock to you….

Not all debts are created equal and there is a such thing as good debt! Let’s break debt down into four different categories ranging from terrible to good:

1. Terrible Debt: This debt is the worst type of debt you can have. This debt includes payday loans and pawn shop loans. These loans typically have a VERY high interest rate. When I say very high, I mean that I once saw one that was 640% interest! I think we can agree that is terrible.

2. Bad Debt: This debt may not be terrible but it is still pretty bad. This includes your credit card debt, unsecured signature loans, car loans, etc. Yes you read that correctly, car debt is not considered good debt. The average new car drops in value $100 per week during the first four years.

3. Better Debt: I only classify one type of debt as better debt and that is home mortgage debt. Every time you make a payment some of this money is going into home equity so hopefully when you go to sell it, it will have gone up in value and you will have made money.

4. Best Debt: If you are going to have debt, business debt is the best debt you can have. This is where I would categorize rental properties, buying franchises, buying into a small business, etc. This type of debt will allow you to scale your business and make more money.

All debts are not created equal and there are some that are way, way worse than others. Make sure you take this into consideration any time you are contemplating going into debt so that you can make the right financial decision.