How both methods start
List every debt with its balance, interest rate and minimum payment. Pay the minimum on all of them, every month. Then pick a target and send every extra dollar there. When the target is paid off, add its whole payment to the next one. Your payment snowballs, or avalanches, as you go.
Avalanche: highest interest first
Target the debt with the highest interest rate. Mathematically this is the cheapest way out, because the most expensive debt shrinks first.
Snowball: smallest balance first
Target the smallest balance, regardless of rate. You'll pay a bit more interest, but you clear your first debt fast. That early win is a real boost, and for many people motivation is the thing that runs out first.
An example
| Debt | Balance | Rate | Avalanche order | Snowball order |
|---|---|---|---|---|
| Store card | $900 | 29.99% | 1st | 1st |
| Visa | $4,200 | 20.99% | 2nd | 3rd |
| Line of credit | $6,500 | 9.95% | 3rd | 4th |
| Car loan | $3,100 | 7.49% | 4th | 2nd |
Here the only difference is whether the car loan or the Visa comes second. Often the two orders are close, and the difference in interest is small. When that's true, pick the one that keeps you going. Put your own debts into the debt payoff planner to compare.
Make either method work faster
- Stop adding new debt. Take the card out of your phone's wallet while you pay it down.
- Find a monthly extra. Even $50 from your wants budget changes the payoff date.
- Ask for a lower rate. A phone call to your card issuer sometimes works, especially with a good payment history.
- Be careful with balance transfers and consolidation loans. They can help, but read the fees and what happens when a promotional rate ends.
If you can't keep up with minimums, call your lenders before you miss a payment. A non-profit credit counselling agency or a Licensed Insolvency Trustee can explain your options. The Financial Consumer Agency of Canada has free information at canada.ca/money.