Grow Financial Federal Credit Union
December 13, 2023

Navigating Debt Reduction: The Debt Snowball and Avalanche Methods

If you’re interested in debt reduction strategies, you’re not alone. According to the Federal Reserve Bank of New York, household debt in America reached $17.29 trillion in the third quarter of 2023, including credit cards, student loans, housing debt and consumer loans.* While it’s no secret that paying down debt isn’t easy, two popular strategies have helped many people along the way: the debt snowball and the debt avalanche approach. Let’s talk about them.

The Debt Snowball Method

Imagine a snowball gaining momentum as it rolls downhill, slowly getting larger along the way. That’s the idea behind the debt snowball method.

Here’s how the debt snowball works:

  • List all your debts from smallest balance to largest balance, regardless of interest rates.
  • Focus on completely paying off the smallest debt first while making minimum payments on the others.
  • Watch your motivation grow as you reach payoff milestones, with each zero-dollar balance adding fuel to your fire.

The snowball method isn’t really about numbers. It’s about psychology. Tackling smaller debts first provides quick wins, boosting your motivation to tackle the larger ones. As you knock out each debt, the sense of accomplishment grows. Compared to other strategies, the debt snowball method might not always provide the biggest cost-savings in the long run since it doesn’t take into account interest rates. However, the mental boost can be a game-changer by providing momentum and positive reinforcement.

The Debt Avalanche Approach

Want to shave dollars off the total you’ll spend on interest? Check out the debt avalanche approach. This popular debt reduction strategy prioritizes efficiency and cost savings. Instead of focusing on eliminating individual debts to build quick wins, the debt avalanche approach prioritizes interest rates.

Here’s how the debt avalanche works:

  • Start by listing your debts from the highest to the lowest interest rates.
  • Channel your resources toward paying off the debt with the highest interest rate first while making minimum payments on the others.
  • Once the highest-interest debt is conquered, move on to the next one in line until you’ve reached zero balances on all debts.

By targeting high-interest debts first, you minimize the overall interest you’ll pay, which typically saves you money overall. While it might take longer to see that “paid in full” status on the smaller debts, you’re strategically chipping away at the financial burden that’s costing you the most. It’s like climbing a mountain — the path might be steep, but the view from the top is worth it.

Debt Reduction Strategies

Ready to start paying down debt? Consider the motivation-boosting debt snowball method or the cost-saving debt avalanche approach. Some people even combine elements of both methods to create a customized strategy. Remember, the key is progress, not perfection. Whichever method you choose, just know that by getting started, you’ll be one step closer to a debt-free future.

Sick of high-interest debt? Consider the benefits of a debt consolidation refinance or balance transfer.

*Federal Reserve Bank of New York. Quarterly Report on Household Debt and Credit. Q3 2023. Released November 2023. Accessed November 28, 2023.

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