If you’ve got more than one debt, every dollar you put toward repayment has a choice to make. It can go to the loan with the highest interest rate, or the loan with the smallest balance. The first is called the avalanche. The second is called the snowball. Both are real strategies. They lead to different outcomes.
The argument for avalanche
Avalanche says: pay minimums on everything, then throw every extra dollar at the highest-rate debt. Once that’s gone, attack the next highest. And so on.
The maths is unbeatable. Every dollar you put on a 19.99% credit card saves you 19.99% in interest, every year, until the card is paid off. The same dollar put on a 6.04% mortgage only saves you 6.04%. Put your money where the rate is highest and you finish faster, with less interest paid.
The argument for snowball
Snowball says: pay minimums on everything, then attack the smallest debt regardless of rate. When it’s gone, roll that payment into the next smallest. Build momentum.
The maths is worse. You’ll pay more interest. But the psychology is better. People who use snowball are statistically more likely to actually finish, because each closed account feels like a win. The avalanche is mathematically optimal but emotionally exhausting if you’re staring at a $40k credit card balance and seeing it tick down by $200 a month for two years.
A real Australian example
Let’s take a household with three debts:
- Credit card: $8,000 at 19.99%, minimum $200/month
- Car loan: $19,400 at 7.49%, minimum $520/month
- Mortgage: $587,000 at 6.19%, $3,800/month
Total minimums: $4,520/month. Suppose they have an extra $400/month to throw at debt.
Under avalanche, all $400 extra goes on the credit card first. The card is gone in roughly 14 months. Then the car loan gets the extra (plus the $200 they were paying on the card). The car gets paid down in another 18 months or so. Then the full $4,520 starts smashing the mortgage.
Under snowball, the same $400 goes on the credit card too (because it’s also the smallest). Same outcome there. But once the card is gone, snowball moves to the car loan. Same outcome. In this case, the strategies converge because the smallest debt also happens to have the highest rate.
Where they diverge
The interesting case is when the smallest debt has a lower rate than a bigger one. Imagine:
- Personal loan: $4,000 at 8.5%
- Credit card: $12,000 at 21%
Avalanche says hit the credit card first. Snowball says hit the personal loan first.
If you have $300/month extra, avalanche saves you about $1,400 in interest over the life of these two debts. Snowball costs you that, but you close out an account inside 12 months, which feels great.
So which one
Honestly, the right answer is whichever one you’ll actually finish.
If you’re a numbers person and you’ve done this before, avalanche. The maths is right and you’ll trust the maths. If you’ve started and stopped a few times and you need the wins to stay motivated, snowball. The interest difference is real but smaller than the difference between "finishing" and "giving up after 6 months."
For most households, the gap between the two methods is $500 to $2,000 over the life of the plan. The gap between "stuck to a plan" and "didn’t" is tens of thousands.
What Funance does with this
The Debts tab models both strategies side by side using your actual debts. Pick avalanche, pick snowball, see the timeline and total interest paid for each. Toggle between them, eyeball which one looks doable, commit.
You can also run the "extra repayment" slider to see what happens if you find $100, $200, $500 a month to throw at it. Most people are surprised how much faster that gets them out. With rates where they are, $200/month on a $20k credit card debt cuts more than 18 months off the timeline.
The fastest route, full stop
If you genuinely want the fastest, lowest-interest route: avalanche, and as much extra as your budget can sustain. Find that extra in subscriptions and bills (see the Subscriptions tab), not in cutting groceries. Lifestyle cuts always come back. Bill cuts stay cut.
And if you’ve got high-rate debt sitting at 19% or more, this is the work that pays back the most reliably. Better than any investment you’ll find this year, with no risk and no fees.