You know what you owe. You know which debts are the most expensive. Now it’s time to get rid of them.
There are two well-known strategies for paying off debt. Both work. The difference is in how they sequence your payments, and what that does to your motivation and your wallet.
The setup (both methods)
Both methods start from the same setup:
- List every debt. Balance, interest rate, minimum payment. All of it
- Keep minimum payments on everything. Both methods assume this. Missed payments add late fees and credit damage that can undo progress
- Work out your extra. After minimum payments and essential expenses, how much money is left? Even €50 a month shortens the timeline. More shortens it further
That extra amount is your weapon. Both methods use the same weapon. They just aim it differently.
The snowball method
Order: smallest balance first.
List your debts from the smallest balance to the largest. Make minimum payments on everything and put every extra euro toward the smallest balance.
When that debt is paid off, roll its minimum payment plus your extra into the next smallest balance. And so on.
Example
| Debt | Balance | Rate | Minimum |
|---|---|---|---|
| Store card | €1,200 | 12% | €40 |
| Personal loan | €4,000 | 9% | €120 |
| Credit card | €6,500 | 22% | €160 |
| Student loan | €14,000 | 4% | €150 |
With €300 extra per month, the snowball method attacks the store card first as it’s the smallest balance. You’d clear it in about 4 months. Then you roll that €40 into the personal loan. Quick wins, visible progress, growing momentum.
Why it works: Quick wins build momentum. When you eliminate a debt entirely, even a small one, you feel progress. That motivation carries you to the next one.
Trade-off: You might pay more in total interest than with the avalanche method, because you’re not targeting the highest-rate debt first.
The avalanche method
Order: highest interest rate first.
List your debts from the highest interest rate to the lowest. Make minimum payments on everything and put every extra euro toward the highest-rate debt.
Same example, different target
Using the same debts, the avalanche method attacks the credit card first as it’s the highest rate at 22%. You’d put all €300 extra toward it every month, giving you €460 total (€300 extra + €160 minimum). It takes about 17 months to fully eliminate, but every euro is attacking your most expensive debt.
Once the credit card is gone, you roll the full €460 into the store card at 12%. Then the personal loan at 9%. Then the student loan at 4%.
Why it works: Mathematically optimal. You pay the least amount of total interest over time. In this example, the avalanche saves you hundreds of euros in interest compared to the snowball, simply because that 22% credit card was compounding fast while you were busy with the 12% store card.
Trade-off: The credit card takes much longer to eliminate. For those 17 months, it can feel like you’re not making progress, even though you’re actually saving the most money.
Which one suits whom?
It depends on what drives a person, and on how far apart their interest rates are:
- Snowball tends to suit people motivated by visible progress. Seeing debts disappear one by one keeps them going. The extra interest is the cost of that motivation, and it is small when rates are similar
- Avalanche tends to suit people who want to minimize total cost and can live with slower visible progress. The math is clear: it pays the least interest, and the gap grows when one debt is far more expensive than the others
- Hybrid approach: Some people start with snowball to build momentum (one or two small debts), then switch to avalanche. There’s no rule that says you have to stick with one method forever
Common mistakes
- Not paying minimums on everything. Putting all your money toward your target debt while skipping minimums on others triggers fees and credit damage, which usually costs more than the extra payment saves
- Borrowing to pay off debt. A consolidation loan at a lower rate can make sense mathematically, but it doesn’t fix the behavior that created the debt. Without a spending change, you’ll end up with the consolidation loan plus new credit card debt. If you do consider consolidation, the loan comparison calculator lets you put the consolidation offer next to the cost of paying down each existing debt directly, including origination fees, so the apparent rate advantage gets tested against the full picture rather than just the headline interest rate
- Stopping when the first debt is gone. The whole point is to roll the freed-up payment into the next one. If you just spend the extra money, you lose the compounding effect
- Waiting for the “right time.” Interest keeps accruing while you wait, so even small extra payments started early reduce the total cost
What comes after
Getting out of debt is not the finish line, it’s the starting line. Once your high-interest liabilities are gone, that monthly payment doesn’t disappear. It becomes money you can redirect toward assets that appreciate over time.
In the next post, we’ll look at why some assets grow your net-worth while others shrink it, the difference between appreciation and depreciation, and the force of compound interest behind both.