Guide
Paying off several debts: snowball, avalanche and what extra money does
Most people with debt have more than one: a credit card, a store card, a personal loan, a car loan. The usual advice is to pay more than the minimum on one of them, but which one? The two famous answers are the avalanche, which attacks the highest interest rate first, and the snowball, which attacks the smallest balance first. This page simulates both, month by month, so you can see the debt-free date and the total interest for each, next to the do-nothing option of paying only the minimums.
How the simulation works
Every month, interest is added to each balance at the debt’s yearly rate divided by 12. Then the minimum is paid on every debt that still has a balance. Whatever is left of your monthly budget, the extra amount plus the minimums that have been freed by debts you have already cleared, is paid to the debt at the top of the order. When that debt is cleared, its minimum joins the pool. This is the rolling effect that makes the snowball and the avalanche work.
Entering the debts
Write one debt per line: name, balance, yearly interest rate in percent and the monthly minimum payment, separated by commas. A name can contain commas. The extra box is the amount you can pay each month on top of the minimums. The select box chooses which method the headline results use, although both are always shown in the comparison table.
A worked example
The sample has four debts: a credit card of 85,000 at 36%, a personal loan of 2,20,000 at 14%, a store card of 24,000 at 18% and a car loan of 4,10,000 at 9.5%, with minimums totalling 23,700 a month, and 10,000 a month extra. Paying only the minimums takes 3 years 9 months and costs 1,98,795 in interest. The avalanche clears everything in 2 years 1 month with 97,272 of interest, saving 1,01,523, and the order is credit card (8 months), store card (9 months), personal loan (1 year 5 months), car loan (2 years 1 month). The snowball also takes 2 years 1 month but pays 99,879 in interest, 2,607 more. With only 3,000 extra the two methods split further: the avalanche takes 2 years 9 months and the snowball 2 years 10 months.
Which method to choose
The avalanche is mathematically the cheapest because it pays down the most expensive money first. The snowball clears a debt sooner, which many people find motivating, and the cost is usually modest: in the sample it was about 2,600. The best method is the one you will stick to. Either is far better than paying only minimums, as the first row of the comparison shows.
Edge cases
If a minimum payment is lower than the interest charged each month, that balance never falls. The page then reports that the debts are not paid off within 100 years, and you should raise the minimum or the extra payment. Balances of zero are rejected, and so are lines with a missing number. A rate of zero is allowed for interest-free debt.
Limits
Rates are assumed fixed and no new purchases or fees are added. Real cards change rates, add charges for late payment and sometimes apply payments to the lowest-rate balance first, so follow your statement. The page does not suggest consolidating loans or balance transfers, which can lower the rate but need careful reading of the fees.
Related tools
- Minimum Due Calculator shows what paying only the minimum costs on one card.
- Credit Utilization Calculator measures how full your cards are while you pay them down.
- Loan Prepayment Calculator deals with a single loan when you pay extra.
- DTI Calculator shows the share of income that goes on debt payments.
Checked against the current version of the Debt Payoff Calculator on .