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!

Furthering Your Financial Education

Have you ever found yourself feeling stuck when it comes to your finances? Could it be because you haven't had the chance to dive into the right knowledge or education about personal finance?

Like any subject, we don’t know every answer to our financial questions. We can’t. That’s why it’s so important to continually strengthen yourself in the areas of personal finance. Just think for a moment: you might have a strong budgeting habit, but are you confident in your savings plan?

Here's the good news – you're not alone! Many of us have asked similar questions or faced challenges due to a lack of knowledge.

So, how can you find ways to consistently educate yourself?

• Educational Blogs

• Financial Community

• Helpful Tools

Another way to take the next step in leveling up your financial knowledge? Complete a personal finance study!

With foundational truth from scripture, learn how to budget, save, invest, plan ahead, and maintain momentum on your financial journey. The I Was Broke. Now I’m Not study blends scripture and money in a relevant, engaging, and life-changing way for you!

Debt Snowball: What Is It?

We can all agree that debt is a drag. It hangs on like a bad relationship or a fixer-upper money pit house. Anyone, when given the choice, would choose to be debt free over paying debt payments every month.

The average family possesses credit card debt, student loan debt, furniture debt, vehicle debt, and a personal loan or two. Then a house payment enters into the picture.

Every single month, 40% or more of the family’s income is “dead on arrival” because it must immediately be sent out to lenders. Let’s work on changing that today!

THE DEBT SNOWBALL TECHNIQue:

• List ALL debts from the smallest balanced owed to the largest: The first step towards financial liberation is to get a clear picture of your debts. From credit cards to student loans, list all your debts from the smallest balance to the largest. Include everything – credit card debt, student loans, vehicle loans, personal loans, and that lingering house payment. This comprehensive list is the foundation for your debt-free journey.

• Pay the minimum payment on all debts except the smallest one.

• Pay as much as you can on the smallest debt: When the smallest debt is eliminated, take the monthly payment you were paying for that debt and add it to the monthly payment you’re making on the second smallest debt.

• Continue this process with a vengeance until you are debt free!! It might not be easy, but with every debt payment disappearing from your monthly budget, you'll gain momentum, inching closer to financial freedom with each payment!

Need help getting started?

You Can Be Debt Free

#1: Understand WHY You Want To Be Debt-Free!

I believe this is the most important step in becoming debt-free!  In the hundreds of financial counseling sessions I have held, it is amazing how many people do not have a plan for their lives. I ask them, “Why do you want to win with your money?”  and they stare at me like I am from outer-space.

“Why?” they stammer back at me.

Seriously, I believe that it is the first time that many of these people have ever seriously thought about what they want to accomplish with their lives.  As a result, they are bumbling through life just “trying to make it through the day”.

What a miserable way to live!

Write Out Your Hopes And Dreams.

When Jenn and I wrote down our hopes and dreams on paper it opened our eyes to the fact that our money management (or lack of) was literally ROBBING us of our future!  We wanted to move back to Anderson, SC to take a job that paid way less than what we were making, but every single dinner at Outback was robbing us of that opportunity.  Every single debt payment went off to make the bank wealthy while at the same time robbing us of our God-given dreams!

By writing out our hopes/dreams on paper, Jenn and I were motivated to manage our money differently.  It caused us to view debt differently.

#2: List Your Debts

I KNOW that it can be scary to total up debt.  The mere fact that it is so scary tells me two things:

• People do not like debt.

• People have not been paying attention to their finances and do not have a well-defined plan for their life.  Otherwise, they would not have incurred most of the debt.  It is literally ROBBING them of their financial future!

Get started by preparing a well-organized list of your debt.

#3: Calculate Your Debt-Freedom DatE

It is really very simple to calculate your Debt Freedom Date.  You need two numbers to calculate your Debt Freedom Date –

• Total Debt Owed

• Total Monthly Payments.  

Calculate by clicking the button below:

#4: Establish Accountability To Become Debt-Free

The strongest among us can still fall to temptation!  You could be making fantastic progress toward debt-freedom and then a new truck pulling a new boat passes you on the road.  If you are not careful, you will also be pulling a new truck and boat down the road!

There are two key ways to ensure you are held accountable to your goal of debt freedom!

• If Married, Work Together With Your Spouse. 

• If Unmarried, Have Someone You Trust (Someone Who Has Won With Their Money) Hold You Accountable!

Plan Your Spending Every Single Month!

Planned money goes further than unplanned money!  Every single month Jenn and I sit down TOGETHER and spend every single dollar on paper before we are paid.  Don’t miss that – that was good! 

Every.  Dollar.  On.  Paper.  BEFORE.  We.  Are. Paid.

From the day that Jenn and I started budgeting, we have not incurred any new debt.  In fact, we became debt-free (minus the house) in just 14 months!

Your budget will hold you accountable. 

#5: Secure Your Debt-FreedoM

Save at least $1,000 before attacking your debt!

I have seen so many people calculate their Debt Freedom Date and get all fired up about attacking their debt.  They sell everything and everyone in sight.  They can’t shut up about getting out of debt.  It is all they talk about with their spouse. Everything goes great for two months.  They smile every time I see them.  “This is awesome”, they tell me enthusiastically.

Five months later, they avoid me.  When I ask them what is up, they say something like, “Well, Johnny broke his arm and the emergency room bill and doctor bills cost me $1,500.  I had no savings so now I am right back where I was – falling back into more debt.”

How demoralizing is it to attack debt so fervently and then have to go right back into debt?  It is AWFUL!  Don’t do that!  Instead, save up at least $1,000 into an emergency fund before attacking your debt, and THEN you can attack your debt all you want!

What happens if you have an emergency pop-up while you are attacking your debt?  You can use the emergency fund to cover the expense.  To replenish the emergency fund, slow down on the debt pay-off plan until you have the $1,000 back in the emergency fund!

By the way, if you have a house, kids, or more than one car I highly recommend $2,500 for your emergency fund.

Secure your debt freedom plan with your emergency fund!

Types Of Debt

Do you feel like you are drowning in debt? Like the payments are consuming your entire paycheck and you can never get ahead? Or worse, there really is not enough money to pay for basic living expenses and cover the debt payments you owe? If you are in a situation where you do not have enough money to pay for everything, I would suggest prioritizing in this order:

1. Housing

2. Food/Prescription Medicine

3. Transportation

4. Back Taxes

5. Secured Debts

6. Family & Friends Debts

7. Unsecured Debts

As you can see, your debts would actually be addressed last. So many people are so terrified of creditors that they make sure these payments are made first. I would suggest the opposite. Once you have your basic living expenses covered, it is then time to decide which debts are going to get paid.  At this point, it is very beneficial to have an understanding of the different types of debt and how they operate.

The first type of debt you should focus on paying back is secured debt. This is debt where the lender can come take something – like a car, boat, motorcycle, tractor, etc. If the lender repossesses the item, they will sell it at a wholesale auction and then come after you for the difference.

The next type of debt I would suggest paying off would be debt to family and friends. I feel this is important because unpaid debts to family and friends have been the cause of relationship issues. It is essential to pay back these debts to avoid these problems!

The last type of debt to pay is unsecured debt. These are the debts that are screaming at you the loudest to pay: credit cards, student loans, signature loans, etc. Why are these creditors the loudest? Because there is nothing they can come take from you! The debt is not attached to anything that they can come and repossess. This is why creditors will play on your emotions to get you to pay them before anything else. I have met so many people who are up to date on their credit card payments but behind on their house payment. I do not want this to be you! Pay your secured debts first!

So go back to your spending plan and make sure that you have all of your priorities in order. If you cannot make all of your payments this month, make sure you are prioritizing and paying the most important first.

0% Balance Transfer Credit Cards

Do you carry a balance on your credit card from month to month? If so, you are likely paying hundreds, if not thousands, of dollars in interest year after year. You should consider transferring your balance to a 0% Balance Transfer Credit Card.

A 0% balance transfer credit card provides a way to eliminate credit card debt very quickly and can provide HUGE savings over keeping a balance on a high-interest card.

Many people look at 0% Balance Transfer Credit Card offers and wonder, “What’s the catch?” Is the interest rate really 0%? 

The answer is, “YES!” Many of these offers do, however, have a small transfer fee – usually around 3%. 

Example:

Suppose you transfer a balance of $5,000 from a card that has a 21.99% interest rate. You apply for a 0% balance transfer credit card. This offer comes with a 3% balance transfer fee, but it also provides 0% for 18 months.

Upon acceptance of your application, the 3% balance transfer fee ($150) will be applied to your balance on the new credit account making your total balance owed equal $5,150 ($5,000 balance that was transferred PLUS the $150 balance transfer fee).

Now comes the good part! You now owe 0% interest for the 18-month period – as long as you make all of your payments on time, of course. 

Let’s take a look at cost if you did not switch to the 0% balance transfer card. Assuming you made no additional charges and paid only the minimum payment due each month, you would have paid $1,162.70 in interest over the 18-month period!!

By taking 15 minutes to do a little research and apply for a 0% interest card, you can eliminate hundreds or thousands of dollars in interest and accelerate your debt freedom date.