Debt snowball or avalanche: compare both methods with your debts

The two methods and where they come from

The debt snowball is Dave Ramsey's method, from The Total Money Makeover, and the second of the seven Baby Steps in his plan. You list your debts from smallest to largest by how much you owe, ignoring the interest rate. You pay the minimum on all of them and put all the extra money on the smallest until it's gone. Then what you were paying on it goes to the next one.

Ramsey leaves the mortgage out and argues for his method on motivation: in his view, consistency and momentum beat methods based on interest rates. His own site describes the alternative, the debt avalanche: paying your debts in order from the highest interest rate to the lowest.

The Consumer Financial Protection Bureau (CFPB) explains both in its reducing debt worksheet: the highest interest rate method, or avalanche, and the snowball method. It gives one rule for both: when a debt is paid off, the entire payment you were making on it, the monthly payment plus the extra, goes to the next debt on the list.

Sources for this part:Ramsey Solutions, Ramsey Solutions, Ramsey Solutions, Consumer Financial Protection Bureau

How this calculator does the math

Each month, every debt gets its interest added and receives its minimum payment. Whatever is left of your monthly amount goes entirely to the first debt on the list that still has a balance; if it pays that one off, the rest moves to the next one that same month. Since the amount doesn't change, the minimum of a paid-off debt is freed up and goes to the next one too.

The order is set at the start and doesn't change. In the snowball, if two debts have the same balance, the one with the higher rate goes first; in the avalanche, if two have the same rate, the one with the smaller balance goes first. Those tie-breakers are Oslo's: the methods say nothing about them.

An example in Colombian pesos, with 480,000 a month for four debts whose minimums add up to 390,000: a credit card of 1,200,000 at 2.6% a month, a phone loan of 600,000 at 1.8%, a loan of 3,000,000 at 1.4% and another card of 2,000,000 at 3%. Both methods take 17 months. The snowball pays off the phone loan in month 5 and adds up to 1,343,656 in interest; with the avalanche, the first debt is paid off in month 12 and interest comes to 1,289,181. The difference is 54,475.

Sources for this part:Consumer Financial Protection Bureau

Which one suits you? You decide

The calculator doesn't choose for you: it shows you both with numbers. The CFPB lays out the pros and cons. The avalanche goes after the most costly debt first and may save you money in the long run, but you may not feel like you're making progress very quickly, especially if that debt is large. With the snowball you may pay more in total, because you're not necessarily eliminating your most costly debt first, but you may see progress quickly, especially if you have many small debts; for some people, that creates momentum and motivation.

An example in Colombian pesos: a credit card of 5,000,000 at 3.2% a month with a 200,000 minimum, and an appliance of 900,000 at 1.2% with a 50,000 minimum, paying 400,000 a month. The snowball pays off the appliance in month 5 and everything in 21 months, with 2,118,182 in interest. The avalanche finishes both in month 20 and pays 1,909,331: 208,851 less, but the first paid-off debt comes 15 months later.

If what drives you is paying less interest, look at the avalanche. If what drives you is seeing debts paid off soon, look at the month the first one is paid off with each method. Both figures are in the result.

Sources for this part:Consumer Financial Protection Bureau

What it assumes and what's up to you

It assumes you pay the same amount every month, take on no new debt and are charged interest monthly. It takes today's minimums as fixed, even though a credit card's minimum goes down with the balance.

Which debts to include is up to you: the calculator orders whatever you enter. Ramsey leaves out the mortgage and puts tax debt first, regardless of the balance. The CFPB worksheet talks about unsecured debt.

Sources for this part:Ramsey Solutions, Consumer Financial Protection Bureau

If your debts are in Brazil

Credit card revolving credit can only last until the next bill. After that, the bank offers an installment plan with its own rate and its own payments: enter those numbers (CMN Resolution 4,549, art. 1).

On revolving credit and bill installment plans, the law doesn't let interest and charges exceed the original amount of the debt (Law 14,690/2023, art. 28, § 1). The calculator doesn't know that amount, so it doesn't apply the cap: your bill shows it, along with what has already been charged (CMN Resolution 4,549, art. 2-B).

Sources for this part:Banco Central do Brasil, Câmara dos Deputados

Keep track of it in Oslo

In Oslo you add each debt with what you owe, its rate and its payment, and you see how much you've paid every time you log a payment. That way you follow the order you chose, month after month, without a spreadsheet.