Snowball or avalanche? How to actually get out of debt

Avalanche: the most expensive debt first

You pay the minimum on every debt and put everything extra into the one with the highest interest rate. Mathematically it’s the cheapest route – you pay the least interest.

Snowball: the smallest debt first

You put the extra into the smallest debt, whatever its rate. When it’s gone, its payment rolls onto the next one. The ball rolls and grows. On paper it costs more – in real life it often works better.

What the research found

David Gal and Blakeley McShane of the Kellogg School of Management analysed data on 6,000 people paying off credit-card debt. Those who closed small accounts first were significantly more likely to get rid of their debt entirely. Small wins supply the motivation the maths lacks.

The best payoff strategy is the one you don’t quit.

How to choose

• If the rates are similar, go for the snowball.
• If one debt is very expensive (a credit card, an overdraft), start there.
• Mix: one small debt first for momentum, then the avalanche.
• Never skip the minimum payments on the others.

In Fiplo you see for every loan when it will be paid off and how much interest is still ahead. The step-by-step plan puts costly loans right after a small emergency fund.