Snowball Or Avalanche? The Best Strategies To Weather Your Financial Storm

A Note From Patricia:

Hello and welcome to Forbes Advisor’s Weekly Brief, where we dive into the realities of consumer finance and empower you with knowledge to help make your financial journey easier.

Winter storm Blair, the first winter storm of the year, hit the mid-Atlantic and Midwest hard this week. But this storm isn’t the only one that Americans might be facing.

As we enter the new year, many consumers may be dealing with the gloom of consumer debt they racked up the previous year—particularly credit card debt. If your resolution is to become debt-free this year, look no further than the winter weather for inspiration. This week, we’ll dive into how snowballs and avalanches can mean much more than winter phenomena—and how these methods can help you become debt-free in 2025.

Sincerely,

Patricia Louis

Editor, Forbes Advisor

Snowball Or Avalanche? The Best Strategies To Weather Your Financial Storm

If you’re in debt, you’re certainly not alone. Credit card balances hit $1.17 trillion in 2024, according to the latest report from the New York Federal Reserve. In Q3 of last year, the average American had an average of $6,380 in credit card debt, according to TransUnion.

Although debt is more common than we realize, tackling it can be intimidating due to high interest rates (the current average credit card interest rate is 28.65%, according to Forbes Advisor’s weekly credit card rates report) and the uncertainty of financial instability, such as difficulty saving for the future. However, it’s possible to conquer your debt with proper planning and a positive mindset.?

There are a few ways to begin tackling your debt, but the best method is always the one that works best for your unique situation. You may have heard of two simple methods: snowball or avalanche. Here’s how these methods work and how to determine which is right for you:

Debt Snowball

This method of paying off debt focuses on the buildup. You start by paying your smaller debts first, then move to the second smallest and so on.?

For example, if your smallest debt has a minimum payment of $100, make as big of a payment on that debt as your budget allows. Let’s say, in total, you can afford to pay $300 to this debt—the $100 minimum payment plus an additional $200. You keep the “snowball” rolling by continuing to make these higher-than-minimum payments on that debt each month.?

Once this first snowball is complete—and the debt is paid off— you move on to your next biggest debt and put that additional $200 on top of its minimum payment. One thing to consider with this method is that you have to keep making the minimum payments on all your debts the entire time—so you’ll have to calculate how much your additional payments will be without overextending your budget.

This method can be helpful for some people because it gives them the psychological satisfaction boost they need to keep going—paying off a debt in full feels good! However, this method prioritizes the largest rather than the highest-interest debts, so you could wind up paying more in interest charges over time.?

Debt Avalanche

Essentially the opposite of the snowball method is the avalanche method, which focuses on paying off your debt with the highest interest rate first to save money over time.?

Staying motivated with the debt avalanche method may be challenging for some, since it takes longer to see progress. But, you’ll save more money in the long run in the form of interest charges.

For example, if you have two debts, one with 28.65% APR and the other with 19.24% APR, you’ll want to pay that 28.65% APR debt off first since it has a higher interest rate.?

If you have an additional $200 to put toward your debt each month, you’d pay it on top of the minimum payment amount—same as in the debt snowball method—until your balance is reduced to zero.?

Once that debt is paid in full, you then start allocating your money toward the 19.24% APR loan. Keep repeating the “avalanche” process until all your debts are settled. Remember to keep paying the monthly minimums on all your debts while using this method to avoid late fees and maintain your credit score.?

It’s important to note that no matter which method you choose, paying more than just the minimum payment on your credit cards is always recommended to break free from the cycle of interest accruals that can keep you trapped in debt.

While these methods can effectively eliminate your debt, there are many other ways to take on the challenge. For more ideas and information on how to pay off your debt in the new year, read more here.

Related Stories:?

• The Debt Snowball Method: How It Works And How To Use It?
• The Debt Avalanche Method: How It Works And How To Use It?
• What To Know About Credit Card Minimum Payments?