Avalanche versus snowball: which repayment order to use

The two orders, stated precisely

Both methods start from the same place. You list every debt you owe. You keep paying the contractual minimum on all of them, every month, without exception. Then you take whatever money is left over after your essential spending and you throw all of it at exactly one debt. When that debt is gone, its minimum payment plus the surplus rolls onto the next one, so the amount attacking the target grows each time a debt disappears.

The only thing the two methods disagree about is which debt goes first.

• **The avalanche** orders your debts by interest rate, highest first, and ignores balance size entirely.
• **The snowball** orders your debts by outstanding balance, smallest first, and ignores the interest rate entirely.

That is the whole disagreement. Everything else, the minimums, the rolling payment, the discipline of one target at a time, is identical. Which means the choice between them is much smaller than the volume of argument around it suggests, and it can be settled with arithmetic rather than conviction.

Why the avalanche must win on money

The avalanche wins the arithmetic every time, and the reason is not complicated. Interest is a rent you pay on money you are still holding. Every unit of surplus you direct at a 36 percent debt removes 36 percent of annual rent. The same unit directed at a 6 percent debt removes 6 percent of annual rent. Directing money anywhere other than the highest rate leaves rent on the table.

There is no scenario in which the snowball produces less interest than the avalanche, holding the total monthly outlay constant. The question is never whether the avalanche is cheaper. The question is by how much, because that number is what you are being asked to pay for the snowball's psychological benefit, and you cannot judge a price you have not calculated.

The worked example

Two debts, one budget, both orders run to completion.

• Debt X, balance 10,000, monthly interest 2 percent (24 percent a year), contractual minimum 500.
• Debt Y, balance 4,000, monthly interest 1 percent (12 percent a year), contractual minimum 200.
• Total monthly budget for debt, 1,200. That is 700 of minimums plus 500 of surplus.

Interest accrues at the start of each month on the balance, then the payment applies. When a debt clears, any leftover money in that month spills straight onto the next target.

Running the avalanche

The avalanche targets Debt X, the 24 percent debt, so X receives 1,000 a month and Y receives its 200 minimum.

X falls in a straight line. After month one it is 9,200. After month six it is 4,953. In month twelve the balance has fallen to 265 and the closing payment of 270 clears it. Of the 1,000 sent that month, only 270 was needed, so 730 spills onto Y.

Y has meanwhile been treading water on its 200 minimum, drifting down from 4,000 to 2,149 by the end of month eleven. Once the spill arrives it collapses quickly. Month twelve takes it to 1,241. Month thirteen takes it to 54. Month fourteen closes it with a payment of 54.

• Total paid, about 15,654.
• Total interest, about 1,654.
• First debt cleared, month twelve.
• Debt free, month fourteen.

Running the snowball

The snowball targets Debt Y, the smaller balance, so Y receives 700 a month and X receives its 500 minimum.

Y disappears fast. From 4,000 it falls to 3,340, then 2,673, then 2,000, then 1,320, then 633. In month six a payment of 640 clears it, leaving 60 to spill onto X.

X, held at its minimum, has barely moved. It started at 10,000 and is still 8,047 at the end of month six, because a 500 payment against a 200 monthly interest charge only removes about 300 of principal. From month seven the full 1,200 lands on X, and it falls steadily to 322 by the end of month thirteen. Month fourteen closes it with 329.

• Total paid, about 15,929.
• Total interest, about 1,929.
• First debt cleared, month six.
• Debt free, month fourteen.

Reading the result honestly

The two orders finish in the same calendar month. The avalanche's final payment is 54 and the snowball's is 329, so the avalanche is very slightly ahead within month fourteen, but nobody would notice the difference on a calendar.

The real difference is 275 in interest, which is about 2 percent of the original 14,000 of debt, and the timing of the first completed payoff, which is month six under the snowball and month twelve under the avalanche.

So the trade is explicit. Roughly 275 buys you the experience of finishing something six months earlier. That is a real product with a real price. Whether it is worth 275 depends entirely on whether you are the kind of person who abandons plans that show no visible progress for a year, and only you can answer that.

This example is deliberately mild. Widen the rate gap and the avalanche's advantage grows quickly. With a 36 percent card and a 6 percent car facility, on larger balances and a longer horizon, the same comparison can produce a difference in the thousands and a finish date months apart. Do not generalise a 275 gap from this example onto your own list. Run your own numbers.

When the two orders agree, and the debate ends

The argument is often unnecessary. Rank your debts twice, once by rate and once by balance. If the two lists come out in the same order, both methods produce the identical plan and there is nothing to decide.

This happens more often than you would think, because the most expensive borrowing is frequently also the smallest. A revolving card balance carrying a very high rate sits next to a mortgage or a car facility carrying a low one, and the card is both the smallest and the dearest. In that situation the avalanche and the snowball are the same method wearing two names.

Check for agreement before you spend any energy on the choice.

What the avalanche's advantage actually depends on

Three factors decide how much the avalanche is worth in your specific case.

1. **The spread between your highest and lowest rate.** A list where everything sits between 8 and 11 percent produces almost no difference. A list containing a 3 percent facility and a 40 percent one produces a large difference.
2. **How long the whole payoff takes.** The advantage compounds. On a fourteen month plan it is small. On a five year plan with the same spread it is several times larger.
3. **Whether the expensive debt is also the large one.** If your highest rate debt is also your biggest, the avalanche keeps it as the target for a long time and the saving is substantial. If your highest rate debt is tiny, the avalanche clears it in a month or two and then the two methods converge anyway.

If all three factors are mild, choose the method you will actually finish and stop optimising. If the spread is wide and the horizon is long, the avalanche's advantage is no longer a rounding error and you should take it seriously.

The hybrid most people should probably use

You do not have to pick a pure method. A structure that keeps almost all of the arithmetic while buying most of the motivation looks like this.

1. Clear any debt small enough to be finished in one or two months, regardless of its rate. These are cheap to remove and each one permanently frees up a minimum payment, which raises the surplus attacking everything else.
2. Switch to strict avalanche order for everything that remains.
3. Keep the total monthly outlay fixed. When a debt clears, do not let the freed minimum quietly become spending. This is the single step that makes either method work, and the single step most often skipped.
4. Recheck the order every six months, or immediately after any promotional rate expires.

Step one is a snowball concession that costs very little, because a debt you can clear in two months was never going to accrue much interest anyway. Step three is where the actual power sits. The compounding of freed minimums is the engine in both methods, and the ordering argument is a debate about the steering wheel.

Cases where neither order is the right question

Some situations override the sequencing decision entirely.

• **Anything secured against something you need.** If missing payments on a car facility means losing the car and therefore the job, that debt is protected first regardless of rate or size.
• **Anything already in arrears or referred for collection.** Restoring current status, and negotiating where necessary, comes before optimisation.
• **Debts with severe non financial consequences.** Obligations tied to legal action, employment, or residency status are not comparable to ordinary consumer credit and should not be ranked alongside it on a rate table.
• **Loans with prepayment penalties.** If clearing a facility early triggers a charge, that charge belongs in the calculation. It can make an apparently high rate debt the wrong target.
• **Your borrowing capacity is already at its regulatory ceiling.** Retail lending in the UAE operates under Central Bank rules that link what you can borrow to your incomeSource^source. If your total instalments are already at that ceiling, no reordering creates new room. Only reducing balances does.
• **You have no cash buffer at all.** Sending every spare unit at debt while holding nothing back means the next unexpected expense goes onto the most expensive card you own, which undoes weeks of progress. A small buffer held deliberately is not a failure of discipline.

What both methods do not do

Be clear about the limits, because both are frequently oversold.

• Neither method reduces the interest rate on anything. They change the order of attack, not the price of the debt. Rate reduction comes from refinancing, consolidation, or negotiation, and those are separate decisions with their own costs.
• Neither method creates surplus. The size of the gap between your income and your essential spending determines almost everything about how fast you finish. Ordering is a second order effect on top of it.
• Neither method protects you from continuing to borrow. A payoff plan running alongside continued spending on the same card is not a payoff plan.
• Neither method is a substitute for advice when the debt is genuinely unpayable. If the arithmetic shows no realistic completion date under any ordering, the problem is not sequencing.
• Neither method knows anything about your circumstances. Both are procedures, not recommendations, and nothing here is advice about your particular situation.

The reason the behavioural argument for the snowball is taken seriously at all is that completion rates matter. Financial literacy policy work consistently treats motivation and behaviour, not just numeracy, as part of what determines whether people follow through on a planSource^source. And borrowing itself is not a fringe activity to be embarrassed about. Formal and informal borrowing is widespread across every income level measured globallySource^source. The useful question is never whether you should have borrowed. It is what order you clear it in, and whether you have priced the choice rather than argued about it.

Build your own list in one sitting

Set aside forty minutes and write down, for every debt you owe.

1. The lender and product name.
2. The exact outstanding balance today, not the original amount.
3. The rate, and whether it is flat, reducing, or a card rate quoted monthly.
4. The contractual minimum payment.
5. Any prepayment penalty or early settlement formula.
6. Any promotional rate and the date it ends.

Then sort the list twice, once by rate and once by balance. If the orders match, start today. If they differ, calculate the difference over your actual horizon the way it was calculated above, look at the number, and decide whether that number is worth the earlier milestone. Either answer is defensible. Choosing without calculating is the only version that is not.

Source^source: Regulations Regarding Bank Loans and Other Services Offered to Individual Customers, Central Bank of the UAE.

Source^source: OECD Recommendation on Financial Literacy, OECD.

Source^source: The Global Findex Database, World Bank.