MONEY · PAYING DOWN DEBT
Avalanche or snowball: the cheaper one is not the one you keep
Two methods, $38 apart over two years. The more rational one often loses to the one that gives an early win. Here are both calculations, side by side.
By the Yoseri News desk · · 5 min read
You have several debts and $200 more a month to put towards them. Two schools have always clashed: attack the highest rate (the avalanche) or the smallest balance (the snowball). One costs less. The other is more often seen through.
The worked case
Four debts, an ordinary profile: a card at 19.99% ($1,240), a car loan at 6.90% ($8,400), a student loan at 5.45% ($6,200) and a mortgage at 2.49%. Current instalments: $1,342. Extra: $200 a month.
| Method | Time | Interest | Difference |
|---|---|---|---|
| Avalanche | 26 months | $1,148 | −$1,217 |
| Snowball | 26 months | $1,186 | −$1,179 |
| Minimum only | 116 months | $2,365 | — |
First finding: both methods crush the minimum. Against 116 months and $2,365 of interest, arguing over the $38 gap between avalanche and snowball is a luxury. The real choice is not between the two methods — it is between a method and none.
Why the avalanche costs less
Because a rate is rent you pay on money that is not yours. Repaying the highest rate first means stopping the fastest leak. Here, the card at 19.99% carries 0.5% of the total debt but 3.9% of the interest paid. It costs nearly eight times its weight.
That ratio — share of interest divided by share of debt — is the only indicator that says in which order to attack. A ratio above 1 means the line costs more than its size.
Why the snowball holds better
The snowball attacks the smallest balance. Here, the card is both the smallest balance and the worst rate: both methods make it disappear in six months. When the two do not coincide, the early win costs a few dollars more — $38 here — and that is often what keeps a two-year plan alive.
It is not a financial argument. It is an argument about consistency, and consistency is the variable that best explains who ends up out of debt.
The question nobody asks
Where do your extra $200 come from? If it is from your "investments" pocket, you are trading a guaranteed return equal to the debt’s rate against a hoped-for return on the markets. Repaying a debt at 6.90% earns you 6.90% guaranteed, tax-free. A portfolio may do better — with no guarantee at all.
It is not an obvious choice, and it is yours. What can be said without risk: on a card at 19.99%, no reasonable portfolio beats repayment.
And for you, what does that mean?
Pull your debts out of their separate apps and put them on one line, with their rates. Work out for each the share of the interest it accounts for. Then pick an order and an end date.
That is exactly what Yoseri’s Debt page does: the three methods costed on your real debts, the order of attack dated, and the share-of-debt against share-of-interest ratio. It does not choose for you.
Yoseri News is an educational publication. Nothing in this article is investment advice, a recommendation to buy or sell, or tax advice. Yoseri is registered as neither an adviser nor a dealer with any market authority.