Debt Avalanche

We discussed Debt Snowball in our previous post. Now let's find out about Debt Avalanche. You might be wondering what’s
Debt avalanche

Boom GIF from Snowing GIFs

We discussed Debt Snowball in our previous post. Now let’s find out about Debt Avalanche. You might be wondering what’s the difference between them. You might also be wondering if one is better than the other. Let’s compare Debt Snowball vs Debt Avalanche.

DEBT AVALANCHE

When you use the Debt Avalanche, you list all of your starting with the lowest interest rate of each debt and proceed down to the highest interest rate. Using our prior example, we would look at each of debts and list them from highest interest rate to lowest interest rate.

  • Car           5%
  • MC           20%
  • Discover  17%
  • Visa          18%
  • Sears        18%

This looks very different then our Debt Snowball. Our MasterCard has the highest interest rate, so we would attack that debt first. Remember from our first example, we had $213 to pay on our debt based our $650 debt repayment amount. Therefore, our new MC payment would be $233.49.

MasterCard Sears VISA Discover Auto Loan 
         
233.49 5.63 10.00 17.88 383.00
233.49 5.63 10.00 17.88 383.00
233.49 5.63 10.00 17.88 383.00
233.49 5.63 10.00 17.88 383.00
112.63 126.49 10.00 17.88 383.00
                     –  121.23 127.89 17.88 383.00
                     –                       –  249.12 17.88 383.00
                     –                       –  124.76 142.24 383.00
                     –                       –                       –  267.00 383.00
                     –                       –                       –  194.86 455.14
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  650.00
                     –                       –                       –                       –  154.60

By using the Avalanche method, the total interest paid on all this debt is $1,004.60. Whereas with the Debt Snowball method, the total interest paid is $1,017.17. In these two examples, the difference paid in interest doesn’t seem that significant. However, when there’s more debt, the difference between the total interest paid by using the Avalanche method will be more significant. You will pay more in interest with the Debt Snowball. However, you will see more progress in debts paid because you attacked the smaller debts first. Again, the choice of which method to apply is completely up to you. The main thing is to just do it.

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