Loans & debt
Debt snowball vs. avalanche: Definition, Formula and Example
Debt snowball directs extra repayment to the smallest balance first; debt avalanche directs it to the highest interest rate first, while minimums continue on other debts.
Scope: General financial concept; examples are hypothetical.
Other names and related labels: Smallest-balance-first payoff; Highest-interest-first payoff.
How it works
After a target debt is paid off, its payment can roll into the next target. With fixed rates, the same payment budget and no special constraints, prioritizing the highest rate generally minimizes interest. Snowball prioritizes earlier account closures rather than that interest ordering.
Extra payment budget = total available debt payment − sum of required minimum payments
The strategies require enough to cover all minimums. Fees, promotional expirations, secured arrears and contractual rules can change priorities.
Two balances and $150 of extra payment
Debt A is $500 at 10%; Debt B is $2,000 at 20%.
- Pay the required minimum on both accounts.
- Snowball sends the extra $150 to A, the smaller balance.
- Avalanche sends the extra $150 to B, the higher-rate balance.
The two strategies target different accounts; this example does not claim a complete payoff time.
No new charges, fees or rate changes; $150 is after required minimums.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
An ordering rule is not a full repayment schedule
The total interest difference depends on payments and timing. Do not skip another account’s minimum to follow a strategy. If total available payments do not cover accruing interest, debt may not amortize.
Explore with a calculator
- Debt Payoff Calculator
Compare supported debt payoff orderings with a fixed budget.
- Credit Cards Payoff Calculator
Model several card balances and their repayment assumptions.
- Credit Card Calculator
Inspect a single card’s payoff under stated payments.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
Calculation methodology and review status · All glossary terms