The Debt Snowball and the Debt Avalanche

I periodically review debt management books to see if there are any new methods that might be useful to my clients. I just finished the book Dear Debt: A Story About Breaking Up with Debt by Melanie Lockert. The book contains a few useful pieces of advice. But the most interesting section deals with the two main methods of debt repayment: the Debt Snowball and the Debt Avalanche. I compare the two methods below.

“Dear Debt” follows one woman’s quest to pay off her debts while juggling three part-time jobs, graduate school, and a long-distance relationship. Much of the book is cliché and platitude: move to a location with a lower cost of living, cut back on unnecessary expenses, etc. Many of the “tips” are not particularly constructive.  For instance, the author defines “debt fatigue” as losing your motivation, over time, to pay off debt. To fight debt fatigue, she suggests scheduling mini-rewards, like:

• Have a dance party in your bedroom
• Take a nap
• Volunteer your time and give to the less fortunate
• Create a fort in your living room with some sheets and blankets and go “camping”

No, I am not joking. This is an adult author making suggestions to other adults. While vounteering may be a noble concept, how it helps to fight fatigue defies comprehension. Likewise, most of my clients do not have the luxury of a nap while trying to pay off debt.

Yet the book does contain some more practical advice. For instance, the book’s main thrust posits that the best way to pay off debt is through “side hustles.” A side hustle is something that you can do to make money outside of your main job. You have to dedicate your nights, mornings and weekends to it. In return, you’ll get extra cash, additional freedom, and the ability to set your own schedule. The book apparently predates Uber and Lyft, because that is how most of my clients now side-hustle.

The most interesting section of the book addresses the Debt Snowball and the Debt Avalanche methods of debt repayment.

The Debt Snowball

The debt snowball method of debt repayment addresses debt fatigue more effectively than the debt avalanche. The debt snowball method takes a person’s emotions into account. In the debt snowball method, you repay the smallest debts first and make just the minimum monthly payments on other debts. With each payoff, regardless of how small, you score an emotional win and (theoretically) stay motivated during the long process of repaying all of your debts.

The debt snowball is not appropriate for everyone. For instance, if you have an enormous difference between your smallest and largest balances, the snowball method’s emotional motivation will not work for very long. And the method only works if you continue to pay the minimum balance on all debts. Late or missed payments break the model.

The Debt Avalanche

The debt avalanche method makes more sense for most situations. The avalanche values math over emotions. The avalanche also takes longer and can lead more to debt fatigue.

In the debt avalanche method, you pay off the higher interest rate debts first. Most financial advisers suggest this method. Paying off your higher interest rate balances first ensures that you pay less overall toward your outstanding debts. Although the avalanche is a tougher slog (no easy, early emotional victories), you save more money in interest. The avalanche also means the shortest possible time to repay all debts, not just the smallest ones.

The Debt Snowball and the Debt Avalanche: Which Method is Right For You?

So between the Debt Snowball and the Debt Avalanche, which is right for you? Perhaps a hybrid.

You should probably start with the debt avalanche method. But there is nothing preventing you from snowballing a smaller debt mid-stream. You can fight off debt fatigue by switching to a smaller debt and gaining an emotional boost from eliminating a creditor from your list. Then switch back to the avalanche and continue to tackle the higher interest rates.

There’s a reason why so many people get stuck in debt: getting out of debt requires a level of commitment and perseverance that can be tough to sustain. In many cases, bankruptcy is simply the better option than either the Debt Snowball and the Debt Avalanche methods. If you have many, many creditors, or the balances are too high to ever repay, Chapter 7 bankruptcy might be the better choice to repayment. Or a Chapter 13 bankruptcy may allow you to repay less than the balances in full. Consult with an experienced debt defense and bankruptcy attorney to learn which method is best for you.