“If you think nobody cares if you’re alive, try missing a couple of car payments.” — Earl Wilson

Whether it’s your wife’s spending habits at Starbucks or your recurring monthly subscription to Brazzers, it always feels like debt is so very easy to get into but so much harder to get out of. Often it can feel like you are simply treading water to keep from drowning in a sea of monthly payments and you feel like you will never get ahead. The bottom line is…

Debt sucks.

That being said, this post is not to make you feel like all debt is evil. Life happens and sometimes going into debt can’t be avoided (especially when you are young and starting a family in the military). But having a plan for getting out of debt is important. If you are like me, you want to pay off your debt as quickly as possible because you hate the feeling of having debt hanging over your head and seeing a significant chunk of your monthly paycheck disappear to pay off debt.

Bottom Line Up Front

There are a variety of techniques for paying off debt quickly without having to resort to cooking and selling crystal meth, but the two most popular are the avalanche and snowball methods. While the overall concepts are similar, they are very different in their execution.

• In the avalanche method, you pay off your debt with the highest interest rate first. Once you have paid off this balance, you then begin paying off your debt with the next highest interest rate and continue the process until you have paid off all your debt. This is the financially optimal method of paying down debt, and you will pay less money overall compared to the snowball method. The downside is it can feel like it’s taking longer to pay off your debt, you become mentally frustrated, and give up.
• In the snowball method, popularized by Dave Ramsey, you pay down your debts in order of balance size, starting with the smallest. This is the psychologically optimal method of paying down debt because paying off small debts first make it feel like you are paying off your debt faster. It also improves your cash flow situation, as paid off debts free up minimum payments that can then be applied to additional debt. The downside is that larger loans (that may be at higher interest rates) are left untouched for longer, and end up costing you more in the long run.

**NEVER MISS A MINIMUM PAYMENT! Missing a minimum payment will RUIN your credit score. In both cases, protect your credit score by continuing to make the minimum payments on all of your debts before choosing which method to devote extra money to.**

Avalanche vs Snowball Method

Let’s use SGT Snuffy as an example to apply both methods. SGT Snuffy is a high-speed, low-drag paratrooper with perfect hair who got conned into joining the SFAB and is currently deployed to Afghanistan for the umpteenth time. He has the following financial situation:

• Loan A (Credit Card): $2000 with a minimum payment of $100/month, 4% interest
• Loan B (Furniture Loan): $3600 with a minimum payment $200/month, 0% interest
• Loan C (Car Payment): $20,000 with a minimum payment of $400/month, 7% interest
• Extra Income while deployed (Tax-Free, Hostile Fire Pay, Family Sep, etc): $900
• Sniper Hill internet is down at Bagram so he can’t waste money fueling his Brazzer’s addiction

SGT Snuffy needs to first pay $100 +$200 + $400 = $700 to make the minimum payments on loans A, B, C. The extra $900 can then either go towards Loan A (smallest balance, snowball method) or Loan C (highest interest rate, avalanche method).

Avalanche Method

With the Avalanche method, SGT Snuffy focuses all his extra income on paying off Loan C first (highest interest rate) while continuing to make the minimum payments on the other two loans. He pays off Loan C in March 2020 freeing up that $400 monthly payment. He then applies that $400 to his extra $900 ($400+$900=$1300) and focuses on paying off Loan A (next highest interest rate). He pays off Loan A in April 2020, freeing up that $100 monthly payment. He then applies that $100 to his extra $1300 ($100+$1300=$1400) and is able to immediately pay off Loan B (lowest interest rate). He is also completely debt free by April 2020. Over time, he will pay a total of $951.83 in interest.

It’s called the Avalanche method because you carry multiple debts for longer, but eventually reach a point where you are able to pay off all your debt very rapidly (all your debt falls away like an avalanche).

Snowball Method

With the Snowball method, SGT Snuffy focuses on paying of Loan A first (lowest balance). He pays off Loan A in February 2019 freeing up that $100 monthly payment. He then applies that $100 to his extra $900 ($100+$900=$1000) and focuses on paying off Loan B (next lowest balance). He pays off Loan B in April 2019, freeing up that $200 monthly payment. He then applies that $200 to his extra $1000 ($200+$1200=$1200) and focuses on paying off Loan C (highest balance) and will be completely debt free by April 2020. Over time, he will pay a total of $1,127.91 in interest.

You can see why it’s called the Snowball method. As debts are incrementally paid off, your ability to apply those minimum payments to other loan balances increases until you have one giant, debt-paying snowball.

Minimum Payment Method

Just for shits and giggles let’s say SGT Snuffy decided to say, “Screw it, I’m going to just make my minimum payments and use all my extra deployment money to buy creatine, dip, and RipIts.” By only making the minimum payments, he won’t be debt free until April 2022 (an extra two years) and will pay a whopping $2811.66 in interest! So let’s avoid this method, shall we?

So what IS the best method to pay off debt?

Logically the avalanche method is always the financial optimum. As you can see in the example above, both methods take exactly the same amount of time to become completely debt free, but you save $176 in interest with the avalanche method. However, Psychologically, the snowball method helps you feel like you are accomplishing more, faster, even if you actually pay more interest in the end.

Unfortunately, there is no magic fairy to tell you which method you should do. The best way to decide is to figure out which of these two questions you prefer to answer:

1. “Given a specific amount of money that I can put towards debt, which debt should I pay down off to save me the most on interest over time?”
   • The answer to this question is the avalanche method
2. “Given a specific amount of money that I can put towards the debt, which debt should I pay down off that will free up income and allow me to stay committed to paying off debt?”
   • The answer to this question is the snowball method

That’s It

Do not underestimate the psychological side of debt payments! If you think that the psychological boost from paying off a smaller debt sooner will help you stay the course, do it! You can always switch things up later. The important thing is to start paying your debts as soon as you can and to keep paying them until they’re gone. Unbury.us is a fantastic tool where you can input your current financial situation and get an idea of how long each method will take and how much interest you will pay overall.

If you found this information helpful, please share it on your social media outlet of choice, and subscribe to my email list to receive more articles like this delivered straight to your inbox. If there is something that I missed or something that didn’t make sense, please comment below and I’ll get right back to you.

Regardless of which method you chose, good luck on your journey to becoming debt free!