Explained: The Debt Snowball vs Debt Avalanche – Just $10 a Month Could Cut 11 Years of Debt Payments

When it comes to debt management, you don’t have to go big to go home. In fact, starting a small debt snowball might be the key to your success. According to an analysis by Chase Bank: on a credit card balance of $2,000 “just by sending an extra $10 for a total payment of $60 instead of the minimum of $50, you could save yourself 11 years worth of payments.”

Owe more than $2,000? Use this debt calculator to figure out how much you can save with extra payments. Too many people never start their debt-free journey because they have convinced themselves that they have to make some grandiose gesture before they can start striving for financial independence. This is false.

Related: Here is How Much Home, Car, and Debt You Can Afford on a 30, 50, and $100,000 Salary

I Want to be Debt Free, Where do I Start?

You can start anywhere, but you have to start somewhere.

It doesn’t matter what age or where you start, but you do have to start. The best time to start was yesterday. The next best time is today. There are plenty of talking heads on the topic of debt. I wrote a whole book. 

You don’t have to listen to me or anyone else. You’re on your own journey. If someone’s advice does apply, use it. If it doesn’t, let it fly. What you don’t want to do is keep collecting (or ignoring) information so long that you remain in the same place every year until you become a cautionary Debt Love Story.

A fool learns from their mistakes. The wise learn from the mistake of others.

If you still need a specific number, then start with $10 over the minimum or try saving 1% more than you’re saving now, especially if the amount you are saving now is zero-point-zero. If it sprinkles long enough, it will still flood.

Financially speaking, given enough time even a small change in how you allocate your money will have a positive impact on your financial lifestyle. Paying only the minimum payment will just ensure you’re paying off that [insert stuff you probably didn’t need] 30 years from now. If you don’t believe me, read the minimum payment box on your next credit card statement. It will reflect your next 30-years of debt.

As an added bonus, I will personally guarantee you that time will pass whether you act now or never. If you disagree, please check in with me 5-years from now to see if 5-years has actually passed. If I’m wrong, I will happily agree to a gentlemen’s wager of one bitcoin.

Should I use the Debt Snowball or Debt Avalanche?

The best plan is the plan that works. Mathematically, the Debt Avalanche will save you the most money. Emotionally, the Debt Snowball is the plan you’re most likely stick to according to science because humans are irrational and on the whole, not very good at math. If we were any good at math we would never use credit cards. Here is a quick overview of the main differences between the two systems:

  • The Debt Snowball: For starters, you need to collect all of your outstanding debt (If you have no idea how much outstanding debt you have, download your free credit reports from AnnualCreditReport.com). Once you’re sure you’re aware of all of your debts, arrange them by lowest balance to highest. Next, pay off as much of the smallest debt each month as you can while still continuing to make at least the minimum payment on all your other debts. Each time you pay off an outstanding debt, roll this payment towards your next smallest debt until you are completely debt free.
  • The Debt Avalanche: The minimum payment rules from The Debt Snowball still apply but instead of making payments by lowest balance, you arrange your outstanding debt by the highest interest rate. In the avalanche system, you pay off as much of the high-interest debt as you can while still continuing to make at least the minimum payment on all your other debts. Each time you pay off an outstanding debt, roll this payment towards your next largest interest debt until you are completely debt free
  • The Debt Who Cares: Then there is my favorite system. The do whatever you possibly can to stop from drowning in debt system (tentative title). In this system, you focus on paying something more than nothing over the minimum payment every month, period. For simplification, as I shared on Forbes.com, I describe this as a 4-step D.E.B.T. plan (D – Define the problem; E – Establish a Plan; B – Build a Budget; T – Trust the process).

Related: D.E.B.T. Free – A 4-Week Starter Kit – a 4-step program designed by Paychecks and Balances, LLC. covering the exact tools and steps we used to become debt free and achieve an 800 FICO Credit Score.

From $30,000 in Debt to $100,000 in Savings

There are levels to adulting. When some people first hear the podcast without recognizing we’re over a decade in the career game, they sometimes conclude Rich and I are out of touch. This is a strange conclusion to reach when we all have access to the same Google.

Your friend Google would inform you that the current goals we speak of are 10-years in the making. We are in a different position now because we started our journey 10-15 years earlier. If we were in the same place personally and professionally an entire decade later, we wouldn’t be very qualified to speak about personal finance or much of anything else. The person who views the world the same at age 50 as they did at age 20 has wasted 30 years of their life.

This is one of the few benefits that come from the Senior Millenial perspective. After 30 plus years on Earth, I now have the historical evidence to prove I can hit goals I set for myself. I’ve hit them in the past, and if history is any predictor of the future, I will hit some more in the future. I will also miss several goals. That’s life.

However, I know that missing goals is not a good reason not to set any goals. For me, not having goals to miss is a greater failure than missing goals I’ve set. In the school of hard knocks, everyone can use a refresher course. That is exactly why we revisit the financial classics every year, like Budgeting for Beginners, Investing for Beginners, and Debt Management for Everyone.

If your own financial house is in order, who cares how I (or anyone) prioritizes organizing their financial furniture?

Sometimes motivation comes from simply having a big audacious goal to pursue. Further, while I might not be in the greatest of health, I have no plans to die at age 40 so guess what I’ll do if I don’t have $100,000 saved by age 40?

**drum roll**

I’ll come up with another financial goal.

The Bobs today sound just like the echoes of the people from yesteryear who said I couldn’t pay off $30,000 by age 30. Maybe the people who think it can’t be done should get out of the way of the people doing it? Standing in the way of progress is just rude, like talking to me in the Uber Pool, and nobody likes that.

In the end, I guess it’s like so many rhythm and blues laureates have complained before me. “Mo money, mo problems…” And, “You can tell me I don’t deserve to ball, but then tell me who deserves it?”

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One Comment

  1. I’ve written about it on my blog, but I agree with the idea that small additions to debt payments can lead to large benefits over time. I’ve developed my own method that I recommend for anyone uncertain about their ability to absorb a much large monthly expense on debt servicing. I call it escalation.

    Let’s say you have a $30,000 debt that requires a $300 monthly payment. You’ve done all of your personal finance work that beginners should do, like a budget/cashflow assessment, and you’ve decided that this $30,000 debt is the next thing you’d prefer to address – but you’re not sure how much more than your $300 payment you’re comfortable with paying. Your assessment says you can afford to pay an additional $100 each month towards that debt, and you might even be able to double the payments with some lifestyle adjustments – but you’re nervous about making those adjustments all at once and incurring the additional expense.

    In debt escalation, you start at the same level you were paying at all along – $300 a month – and escalate towards that additional $100 payment ($400 a month) in gradual, easy to absorb increments, $10, $20, $25 at a time. After 4-10 months, you’re making the $400 a month payment. Now you work on your lifestyle – rather than going frugal all at once and making a radical, revolutionary change in your life (which absolutely works for some of us, but not all of us), you can change a bit at a time while continuing to escalate your payments by $10, $20, $25 at a time, until eventually you’re making that double payment.

    Having successfully escalated the debt payment twice, you now have the opportunity to look for other ways to cut expenses and escalate your payment again to pay off your debts faster and with less interest accrued.

    Does it pay down debt as fast as making an immediate change and doubling up your payments? No. But it does get you there in a way that makes meaningful progress and helps you to adjust at your own pace. Life changes like diets and exercise regiments, new relationships, new side hustles and new hobbies often fail spectacularly at great expense if we try to go all-in, all at once. Escalation gives you a goal, a process, and enough control to say “slow down” if it all happens to quickly.

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