Avalanche vs. snowball

A payoff order starts from one monthly amount. The minimums come out first, and the rest, the surplus, goes to the debt at the front of the order. When that debt is paid off, what it no longer needs moves to the next debt in line, on top of that debt's own minimum, so the amount aimed at the front of the line grows as debts clear.

The two methods differ in which debt is at the front. The avalanche puts the debt with the highest APR there, where a dollar of principal stops the most interest a month. The snowball puts the smallest balance there. When the smallest balance also carries the highest APR, both methods start on the same debt.

Two debts: a $2,000 loan at 6% APR with a $100 minimum, and an $8,000 card at 24% APR with a $200 minimum. The full $600 is paid every month, the minimums stay fixed and nothing new is charged, so $300 a month is surplus. Interest is charged on each month's opening balance before the payment: the first month's is $10 on the loan and $160 on the card.

The avalanche sends the $300 to the card. Both debts clear in month 20, and the interest comes to $1,851. The snowball sends the $300 to the loan, which clears in month 6; from then on the rest of the $600 goes to the card, which clears in month 21. The interest comes to $2,154. The figures here are this example's arithmetic; the planner works out its own for the debts entered in it.

Snowball, total interest

$2,154

Avalanche, total interest

− $1,851

Difference

$303

The order decides how much interest accrues on the way to zero, because it decides which balance falls first. In the example the avalanche pays $303 less interest and finishes one month sooner, month 20 against month 21.

It also decides when the first debt disappears. In the example that is month 6 under the snowball and month 20 under the avalanche. Under the snowball, from month 7 the loan's minimum is no longer owed, and the whole $600 goes to the card.

Taiga Finance's Debt page keeps a payoff readout with three views, “As planned”, “Avalanche” and “Snowball”, and the calculator is under Scenarios as “Debt payoff”, with a “Strategy” picker offering the same three and a “Monthly budget”. When the plan reaches payoff, it shows a “Debt-free” month beside an “Interest left to pay” figure, “Balance over time” with the balance falling to zero, and a “Payoff order” chart with one lane per debt.

When both methods reach payoff at the monthly budget, a note on the “Interest left to pay” figure names the cheaper of the two and by how much, or says they cost the same, “at your budget, before one-time moves”, and a click on the figure lists “Avalanche (highest rate first)” and “Snowball (smallest balance first)” with each one's total interest. Under Avalanche the front of the line is picked by the highest rate in effect, so a card on a promotional rate is ranked by its standard rate once the promo ends.