How the avalanche and snowball methods pay off debt
Take the debts in the answer above: $15,200 owed in all, $440 a month to pay them with, and the avalanche order, highest rate first.
- Avalanche lists the debts by rate, highest first, and equal rates by balance, smallest first. The list is made once, from the balances you start with, and does not change as they fall. Credit card (24.99%) → Store card (18.90%) → Car loan (6.50%)
- Each month, every balance first adds a month of interest: the balance times its rate, divided by twelve and rounded to the cent. In the first month: Credit card: $5,000 × 24.99% ÷ 12 = $104.13 Store card: $1,200 × 18.90% ÷ 12 = $18.90 Car loan: $9,000 × 6.50% ÷ 12 = $48.75
- Every debt is paid its minimum, and the budget is exactly what the minimums come to, so nothing is left over yet. The order starts to matter when a debt clears: the budget stays where it is, so the payment that debt was taking moves to the first debt on the list still being paid. $440 − ($125 + $35 + $280) = $0 left over
- Here Car loan is cleared first, after 3 years, and from then on what it was taking goes to Credit card. Each debt that clears passes its payment down the list the same way.
- Month by month like that, the last balance is cleared after 3 years and 11 months. Everything paid above what was owed is interest. $20,504.64 − $15,200 = $5,304.64 interest
- The other method, snowball, on the same budget takes 3 years and 11 months and pays $5,320.76 in interest. $5,320.76 − $5,304.64 = $16.12 more than avalanche
That is where the 3 years and 11 months and the $5,304.64 of interest in the answer come from. Paying each minimum on its own instead, with nothing passed on when a debt clears, takes 7 years and 3 months and costs $7,309.01.
The budget decides the answer, not the order
Almost every article about paying off debt is an argument between two orderings. Pay the highest rate first, because that is the cheapest. Pay the smallest balance first, because closing an account keeps you going. The argument is real, but it is an argument about the smaller of the two numbers on this page.
Set the same debts against a budget a quarter larger and watch what happens to the months. Then switch the order and watch again. On most sets of debts the order moves the total by a few per cent and the budget moves it by a third. That is why this page shows both orders at once and puts them below the comparison against minimum payments: the ordering question is worth answering, and it is not the question that matters most.
Why holding the payment level does the work
The page opens on a budget that is exactly the sum of the minimum payments, and it opens there deliberately. Nothing extra is being paid in that state. The only difference from paying each minimum separately is that the total stays where it is as balances disappear.
That single change is most of what the snowball method actually is. When a balance clears, the payment it was taking does not go back into your spending; it lands on the next debt in the order, which then clears sooner and frees a larger payment still. The effect compounds in the only direction a borrower ever wants it to. Compare the first two rows of the table above: same money every month, and usually a difference of years.
The reason the separate-minimums row is so much worse is that a minimum payment on a card is a percentage of a falling balance, so it falls too. Paying it is a commitment that shrinks exactly as fast as your progress does. Holding the total level breaks that.
Reading the order table
Every debt is paid its minimum every month, whatever the order says. The order only decides where the leftover goes, and it is set once from the balances you entered rather than recalculated as they fall. That is how people actually do it: you write the list down and work through it.
Two consequences follow. A debt at the bottom of an avalanche list can sit almost untouched for years while its minimum barely covers its interest, and the table will show that honestly. And a debt with no interest at all goes last under avalanche, which is correct: money aimed at an interest-free balance saves nothing.
Common questions
What should I put in the minimum payment column?
The figure on the statement. For an instalment loan, a car loan, a personal loan or a student loan, that is the contractual payment and it does not move. For a credit card the minimum changes every month because it is a percentage of the balance, so a card is better handled on the credit cards page, which asks for the rule rather than a fixed amount.
Why is the budget refused when it is below the minimums?
Because a plan that does not pay every minimum is not a payoff plan, it is a plan to default on something. The page will not draw a schedule that quietly skips a payment, so it tells you what the minimums come to and stops there. If that figure is genuinely out of reach, the thing to look for is not a better ordering but a way to change the terms, and that is a conversation with the lender or with a non-profit debt adviser rather than with a calculator.
Why does it say these debts never clear?
Because the budget does not cover the interest the balances charge between them, so the total grows rather than falls. No ordering fixes that. Only a larger payment, a lower rate or a smaller balance does, and the page says so rather than drawing a schedule that runs off the end.
Should I really put every spare pound at the debt?
This page does not have an opinion, and it is worth saying that it cannot have one. It does not know whether you have anything set aside for a broken car or a lost month of work, and clearing a card at the cost of borrowing again in March is not progress. The arithmetic here answers exactly one question: on a given budget, how long and how much. What that budget should be is not arithmetic.
Is anything I type stored?
No. The calculation happens on the server as part of rendering the page, nothing is written down, and the access log for this site drops the query string precisely so that the numbers you enter are never recorded.
Sources
The order and the schedule are arithmetic rather than a rule anyone publishes, so what these references pin down is what this page does not calculate.
How this is worked out
Interest for a month is each balance times its yearly rate divided by twelve, rounded to the cent in a single step. Every debt is paid what its own minimum asks, never more than it owes; whatever the budget leaves over goes to the first debt in the order and spills to the next once that one is settled. The order is fixed from the opening balances and is not recalculated as they fall.
The minimum payments and the interest on your own agreements are what actually govern, and nothing here accounts for keeping money aside for emergencies.
What the plan leaves out:
- Anything you borrow from here on
- Annual fees, late fees and over limit fees
- Introductory rates and the day they end
- Balance transfers and the fee for making one
- Rates that move, including every rate that is variable today
- Daily interest on the average daily balance, which is how a card statement accrues it
- Tax of any kind, including interest that is deductible where you live
- Money kept aside for emergencies, which paying every spare pound at a debt leaves you without