Snowball Method vs. Avalanche Method vs. Debt Consolidation

Paying off debt is one of the most important steps toward financial stability. It can reduce stress, save you money on interest, and improve your credit score. But where do you even begin? Today, we are breaking down three popular repayment strategies—the snowball method, the avalanche method, and debt consolidation—to help you decide which works best for you.

What is the Snowball Method?

The snowball method is a repayment strategy that prioritizes paying off smaller debts first to build motivation. This is known as the “snowball effect.” Here’s how it works:

1. List all your debts from the smallest balance to the largest
2. Focus on paying off the smallest debt first, while making minimum payments on the rest
3. Once you have fully paid the smallest debt, roll that payment toward the next smallest debt
4. Repeat until all debts are paid!

By clearing smaller debts quickly, you get to celebrate immediate wins that keep you motivated.

Pros & Cons of Snowball Method

PROS:

• Paying off one debt feels great and motivates you to tackle the next
• The quick wins keep you engaged and helps you stick to your repayment plan
• It’s simple to follow, requiring no advanced math—just focus on the balance size

CONS:

• Could cost more money over time because interest keeps adding to larger debts
• If your smallest debt is tiny compared to your high-interest debts, you might feel like you’re not making a lot of progress once the quick wins are gone

What is the Avalanche Method?

The avalanche method is a math-focused approach that concentrates on saving money and minimizing interest payments. How to get started:

1. List all your debts in order of interest rate, from highest to lowest
2. Direct extra payments toward the debt with the highest interest rate (while making minimum payments on the others)
3. Once you have cleared the highest-interest debt, move to the next highest, and so on

By targeting high-interest debts first, you reduce the amount of interest that accumulates, potentially saving thousands of dollars over the course of your repayment.

Pros & Cons of Avalanche Method

PROS:

• Makes the best use of your money by targeting costly debts first
• Helps you save money by reducing the amount of interest paid

CONS:

• Progress may feel slow, especially when dealing with large, high-interest debts
• Without quick victories, it can be harder to stay motivated

What is Debt Consolidation?

If juggling multiple debts feels overwhelming, debt consolidation might your best bet. This strategy combines all your debts into one, typically through a loan or balance transfer. In the end, it leaves you with a single monthly payment at a lower interest rate.

How debt consolidation works:

1. Take out a loan with a lower interest rate than your current debts
2. Use that loan to pay off all your other debts
3. From there, you only need to manage a single monthly payment at a lower rate

Pros & Cons of Debt Consolidation

PROS:

• Debt consolidation loans simplify your finances with one monthly payment
• Lower interest rates than most credit card rates, saving you money
• Paying off multiple debts can improve your credit utilization ratio

CONS:

• Doesn't change your spending habits that contribute to debt
• Lower monthly payments often mean longer repayment periods
• Borrowers may need a good credit score to access the best personal loan rates

Snowball vs. Avalanche vs. Debt Consolidation – Which is Best for You?

Choosing the right debt repayment strategy depends on your personality, financial habits, and situation.

• IF YOU NEED MOTIVATION — The snowball method is perfect for those who need quick wins to stay motivated. It’s easier to stick to, especially if debt feels overwhelming.
• IF YOU WANT TO SAVE MONEY — The avalanche method is ideal for people who are willing to take the long-term approach to minimize interest costs.
• IF YOU LIKE THINGS SIMPLE — Debt consolidation is great if you are juggling several debt payments and have the credit to lock in a good rate.

Need Help With Debt? We’ve Got You!

Remember, the best debt repayment plan is the one that you’ll actually stick to. At Academy Bank, we understand that navigating debt can be challenging. That's why we offer several solutions to support your repayment goals:

• EXPRESS LOAN¹ — Consolidate your debts into one manageable payment with this personal loan.
• CASH-OUT REFINANCE² — Use your home equity to pay off high-interest debt.
• DEBT CONSOLIDATION CALCULATOR — Considering consolidating your debt? Find out if it makes sense financially by comparing interest costs.
• REFINANCE SAVINGS CALCULATOR — Thinking about refinancing your mortgage? This calculator shows how much interest you could save and how much equity you could access through a cash-out refinance to pay off high-interest debts.
• LUNCH SAVINGS CALCULATOR — Small changes can lead to big gains. Want to see how much skipping your daily takeout lunch could save you? Use this tool to discover how those savings can chip away at your debt!

Take charge of your debt repayment today, and get in touch with one of our bankers to start making progress!