Snowball vs avalanche, honestly

The two methods

Both start the same way. You pay the minimum on everything, you decide on a total monthly budget, and every dollar above the minimums goes to one target account. When that account clears, its whole payment rolls onto the next one, so the amount attacking the debt grows even though your budget never changes. That rolling is where nearly all of the power is, and both methods have it.

They differ only in which account you point it at.

• Avalanche targets the highest interest rate first. This provably minimises total interest paid. There is no argument about the arithmetic and there never has been.
• Snowball targets the smallest balance first, regardless of rate. It clears accounts sooner, which costs money and buys something else.

How big is the gap, really

Smaller than the argument suggests, most of the time. Here is a household with three cards and a fixed budget, run both ways, with minimums calculated at 2% of the balance subject to a $25 floor.

Now change the shape. Put most of the balance on the highest rate and leave two small low-rate accounts to be cleared first.

Both examples are illustrative, and yours will differ — the point is the pattern. The gap is small when your rates are close together or your balances are similar in size, and large when one big balance carries a much higher rate than the rest. Run your own figures through the comparison before you take a position, because the number in your case is knowable in about two minutes.

The case for snowball is not a feeling

The usual dismissal is that snowball is "for people who need motivation", said in a tone that makes it clear the speaker does not. That is worth resisting, because the behavioural evidence is real and it points the other way.

Amar, Ariely, Ayal, Cryder and Rick, writing in the Journal of Marketing Research in 2011, documented what they termed debt account aversion: across repeated experiments, people preferred to clear small accounts entirely rather than pay down the highest-rate balance, and did so even when it cost them money. Later work in the same area, including research summarised in the Harvard Business Review, has pointed in the same direction — that concentrating repayment on one account and closing it out is associated with people staying with a plan and eliminating more of their overall balance.

Read that carefully, because it is easy to overclaim. The finding is not that snowball saves money — it does not, by construction. The finding is that people are more likely to keep going. And a plan you abandon in month nine has a return of zero, whatever its rate ordering was.

There is also a straightforwardly practical benefit that has nothing to do with psychology. Clearing an account removes its minimum payment from your monthly obligations. Clear two small accounts and your required outgoings drop, which is genuine breathing room if your income is irregular or your job is uncertain. Avalanche can spend two years pointed at one large balance without freeing up a single dollar of committed spending.

Take most of both

You do not have to pick a doctrine. Two adjustments capture most of the benefit of each.

1. Order by rate, but bring a nearly-finished account forward. If clearing a small balance costs a few weeks of interest at a low rate, take the win. Order by rate from there.
2. Ignore the ordering question when rates are close. If your accounts sit within a few points of each other, the arithmetic is nearly indifferent and you should simply choose the order you will actually follow.

What matters far more than either is the budget. Adding $100 a month to the total will beat any reordering of the same money, in every case, without exception. If the two methods are only a few hundred dollars apart across three years, the argument about which to use is worth considerably less than the hour spent having it.

Four situations that overrule both

• You are trying to qualify for a mortgage. Then the objective is not interest, it is removing monthly payments — which favours clearing whole accounts, snowball-style, but ranked by payment removed per dollar spent rather than by balance. That is a third ordering and it is what the payoff optimiser produces. See also what counts as a minimum payment.
• You have a promotional balance with an end date. A 0% transfer must be cleared before the cliff regardless of where it sits in either ordering. Deadlines beat rates.
• A debt is secured, or someone else is attached to it. A car loan you would lose the car over, or a debt a family member co-signed, is not just a rate. Priority is not always a financial question.
• You cannot cover the minimums at all. Then neither method applies and the honest next step is an issuer hardship programme or a non-profit counselling agency, not a better payoff order.

The answer

Run both. If the gap is small — and for most households with several similar cards it is — take snowball, because the evidence says you are more likely to finish and the arithmetic says it costs you very little. If the gap is large, and it will be large when one high-rate balance dominates, take avalanche and put the first cleared account somewhere you can see it.

Anyone who tells you the answer without looking at your balances is arguing about themselves.