How to get out of debt: snowball or avalanche method (with an example)

Having several debts at once —the credit card, the car loan, the phone instalments, the overdraft— is stressful for one specific reason: you don’t know where to start. You pay a bit of everything, the interest keeps running, and you feel like you’re running without moving forward.

The good news is that getting out of debt isn’t a matter of luck or of suddenly earning more. It’s a matter of order. There are two proven methods for deciding which debt to attack first, and choosing well can save you money, months of stress, or both. Here are the two, with a numeric example so you can see the real difference.

Before choosing a method: put your debts on the table

You can’t plan what you can’t see. The first step, always, is to list all your debts and, for each one, three things:

• How much you owe (the outstanding balance).
• At what interest rate (the APR: a card at 20% is not the same as a loan at 6%).
• The minimum payment you make each month.

With that list in front of you, you’ll notice something important: not all debts cost the same. A card or a “revolving” credit at 20% is hurting you far more than a loan at 6%, even if the balance is smaller. That detail is the key to everything that follows.

The second step is knowing how much extra you can put in each month, above the minimums. Even if it’s €100, that extra is your lever: it’s what actually brings the debt down. The strategy is to pay the minimum on every debt and pour that extra into just one, the one you pick according to the method.

Snowball method: smallest balance first

The snowball attacks the debt with the smallest balance first, ignoring interest. You pay the minimums on everything and throw your extra at clearing the smallest as soon as possible. When you wipe it out, you add its payment to the extra and attack the next smallest. And so the “snowball” grows.

Its strength isn’t mathematical, it’s psychological. Clearing a whole debt early —crossing it off the list— gives a boost of motivation that keeps you going. And getting out of debt is, above all, a long-distance race: the method that works is the one you don’t quit.

Avalanche method: highest interest first

The avalanche attacks the debt with the highest interest first, ignoring the balance. You pay the minimums on everything and throw your extra at the most expensive one. When you clear it, you move to the next highest interest.

Its strength really is mathematical: by braking sooner the debt that generates the most interest, you pay less money in total and get out slightly sooner. It’s the optimal option if what you want is for it to cost you as little as possible.

The example that shows the difference

Imagine these three debts, and that you can put in €200 extra a month above the minimums:

• With the snowball, the order of attack is by balance: phone → card → car. The first win (clearing the phone) arrives in a couple of months: it motivates and hooks you.
• With the avalanche, the order is by interest: card → phone → car. It takes a little longer to cross off the first, but you brake the 20% card sooner —the one piling up the most interest— so you pay less overall.

How much money separates one from the other depends on the balances and rates, but the rule is constant: the avalanche saves interest; the snowball gives momentum. On expensive, large debts, the avalanche can mean real savings; when the debts are similar, the difference is small and motivation wins.

Which to choose (hint: the one you’ll actually keep)

• Choose the avalanche if seeing the numbers motivates you and you can hold on without a quick reward. It’s the one that costs you least.
• Choose the snowball if you’ve tried to get out of debt before and given up. Early wins are worth more than a few euros of interest if they’re what keeps you in the race.

There’s no universal answer. The avalanche is better on paper; the snowball is better if it’s the one you actually finish. A method you keep always beats an optimal one you abandon.

Four rules that make it work

1. Don’t take on new debt while getting out of the old. It sounds obvious and it’s what fails most. Put the card away if you need to; you don’t get out of a hole by digging deeper.
2. Have a small cushion before you accelerate. A minimum emergency fund (even €500-1,000) stops an unexpected expense from sending you back to the card just when things were going well.
3. Automate the extra payment. Schedule the transfer to the debt you’re attacking on payday, before you spend. If it depends on your willpower at month’s end, there’s rarely anything left.
4. Be careful with “consolidating”. Merging several debts into a single loan can lower the monthly payment, but sometimes it stretches the term and you end up paying more. Always look at the total cost, not just the monthly figure.

Mistakes that drag it out

• Paying a bit of everything with no order. Splitting the extra across all debts is the slowest way out: you clear none and interest keeps running on all of them.
• Ignoring interest. Paying down the cheap loan while the expensive card keeps growing is throwing money away.
• Looking for room only in the big expenses. The money for the extra payment rarely comes from a painful sacrifice; it usually comes from adding up latte-factor spending, which doesn’t hurt one at a time but weighs at the end of the month.
• Forgetting non-monthly expenses. Insurance, tuition or December’s gifts can send you back to the card if you don’t plan for them. Keeping them in sight, alongside the rest of your household expenses, avoids the relapse.

Where does Cuéntamo fit in?

Getting out of debt becomes much more manageable when you see the whole map, and that’s exactly what’s hard when the debts are scattered across the bank, the card and two instalment plans.

With your transactions imported and categorised, you can see what goes to each debt every month and —most useful— how much real room you have for the extra payment without falling short on essentials. Because the forecast looks ahead, you know which months you’ll be able to push harder and which to ease off (that month when insurance and property tax land together). And if you share expenses or someone owes you, you can note those person-to-person debts and settle them without forgetting.

It doesn’t pay the debts for you, but it removes the most stressful part: not knowing where you stand.

You can try it free at cuentamo.com.

Frequently asked questions

Snowball or avalanche, which is better?

The avalanche costs you less money (it attacks the highest interest first). The snowball motivates more (you clear whole debts sooner). The best one for you is the one you’ll keep to the end; if you’ve given up before, the snowball usually wins.

Do I save first or pay off debt first?

Both, in order: first a minimum cushion (so you don’t fall back on the card when something unexpected hits), then attack the debts with everything, and once you’re out, build the full fund and save. Paying off a card at 20% “returns” more than almost any saving.

Is it worth consolidating all my debts into one?

It can be, if the new loan’s interest is lower and you don’t stretch the term too much. The risk is lowering the payment but paying for more years, and ending up paying more overall. Always compare the total cost, not just the monthly instalment.

What if I can barely cover the minimums?

Then the problem isn’t the method, it’s the cash flow: you need to renegotiate payments or seek help before the debt grows. Contact the lender as soon as possible; staying silent and not paying is almost always worse than asking for a restructuring.

This article is general personal-finance information, not individual financial advice. Every situation is different; if you have doubts about yours, discuss it with a professional.