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 proven 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)
Before choosing a strategy, do this:
- List every debt. Balance, interest rate, minimum payment. All of it
- Commit to minimum payments on everything. Never skip a minimum payment. Late fees and credit damage will undo any progress you make
- Find your extra. After minimum payments and essential expenses, how much money is left? Even €50 a month makes a difference. More is better
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 should you use?
It depends on what drives you:
- Choose snowball if you’re motivated by visible progress. Seeing debts disappear one by one keeps you going. The extra interest you pay is the cost of staying motivated
- Choose avalanche if you’re disciplined and want to minimize total cost. The math is clear: you’ll pay less. But you need to be okay with slower visible progress
- Hybrid approach: Start with snowball to build momentum (knock out one or two small debts), then switch to avalanche once you’re rolling. 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. Never do this
- 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.” The best time to start is now. Even small extra payments make a difference
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.