Debt Snowball vs. Debt Avalanche: What the Research Says

The cheapest sequence for clearing several debts is one that most borrowers in large card studies do not follow. Debt snowball vs avalanche is the choice between two orders. Both pay every minimum and put all spare money on one debt at a time: the snowball targets the smallest balance first, the avalanche the highest interest rate. While rates stay fixed, the avalanche always costs the same or less. The snowball clears whole accounts sooner, and some research links that to people sticking with repayment.

The short verdict depends on your situation. If one debt carries a much higher rate than the rest, starting there saves the most. If the rates are close, the order barely changes the cost, so choose whichever you will keep to. If you have given up on repayment plans before, an early paid-off account may be worth a little extra interest. And if you cannot cover your minimums or essential bills, neither method fits yet: free debt advice comes first, as the last section explains.

What the debt snowball vs avalanche choice changes, and what it leaves alone

The two methods share almost everything: list your debts, pay the minimum on each, send every spare dollar to one target, and when that debt is gone, roll its payment onto the next. Only the order differs. Australia’s Moneysmart, the government’s consumer money site, suggests paying off one card at a time and offers both starting points: the smallest debt, because clearing it helps you keep going, or a card with a much higher rate.¹

The US Securities and Exchange Commission (SEC) gives a single answer: pay down the highest-rate card first, keep up the minimums everywhere else, and treat other high-interest debt the same way.² Neither label comes from research. “Snowball” describes a payment that grows as each freed-up minimum rolls into it; “avalanche” is shorthand for starting at the top of the rate list.

Both methods rest on the same arithmetic of interest charged on whatever balance is left, which is set out in how interest and amortization work on a debt; the wider set of debt and credit guides covers scores and borrowing costs. Because the order is the only difference, the useful question is which order you will actually keep to for a year or more.

Which method costs less, and by how much

The avalanche is never more expensive while the rates stay as they are, because each spare dollar goes where it cancels the most interest. Across American households, a 2023 study by Ben Hamilton in the Southern Economic Journal estimated that following the snowball instead costs the average household 1.8 to 4.3 percent more in interest.³ For the average household in that estimate, the snowball’s price is real but modest.

Myth

Paying the smallest debt first is simply a costly mistake.

Fact

It never costs less than paying the highest rate first, but in one 2023 US estimate the average household's extra interest was modest, and it buys an earlier paid-off account.

The study used the 2016 Survey of Consumer Finances, a US household survey, to estimate what the snowball costs American households. Its abstract (the full paper was not accessible to us) adds that the snowball’s penalty was larger for low-income households, for Black households and for households with more debts to begin with.³ That pattern matters: in this estimate, the snowball’s extra cost fell hardest on the households with the least room in their budget.

The example shows what drives the gap. It grows when the rates are far apart and when the high-rate debt is large; it shrinks when the smallest debt also has one of the higher rates, because then both methods start in the same place. What the snowball buys for that extra interest is time to the first win: in the example, a debt gone in five months rather than nineteen. Before choosing, write each debt’s balance and rate side by side; if the smallest balance also carries one of the top rates, the choice mostly makes itself.

1. Snowball: the US$900 store card is paid off in month 5, the credit card in month 21 and the loan in month 31; about US$2,660 in interest in total
2. Avalanche: the 24% credit card is paid off in month 19, then the loan and the store card both in month 30; about US$2,480 in interest in total
3. The trade: the snowball clears its first debt 14 months sooner and costs about US$180 more in interest in this example

snowball avalanche. Each dot is a debt paid off; ticks every 6 months (illustrative arithmetic, not real accounts)

Many borrowers follow neither method

Real borrowers rarely follow the avalanche, and many do not follow the snowball either. In UK data on more than a million credit card holders from 2013 and 2014, most people with two cards should have put all their spare repayment on the higher-rate card, but only about 1 in 10 did.⁴

Instead, the researchers, John Gathergood and colleagues, found that people tended to split repayments in proportion to the balances, paying more on whichever card owed more. They call this balance matching, and it explained more than half of the predictable variation in repayments, fitting more of the data than the snowball or any other rule of thumb they tested.⁴ A study of a representative sample of cardholders in Mexico found the same weak link between interest rates and where people put their debt and their payments.⁵

Lab games show how strong the pull toward small debts is. Moty Amar and colleagues, in a 2011 paper of four experiments and three surveys, named it debt account aversion: players of a repayment game, all university students and in most versions paid according to how well they managed their debts, kept clearing small debts first even when the larger ones charged higher rates.⁶ Showing players the interest each debt had already run up helped them cut total debt, the authors report, though in their test that difference was not statistically clear-cut.

The lesson is that your default may be neither method. Spreading payments in proportion to balances feels fair and tidy, but it keeps every debt alive and leaves the most expensive one shrinking no faster than the cheapest. If that describes how you pay now, choosing either method and concentrating your spare money is probably a bigger change than which of the two you pick.

Does clearing small debts help people finish?

On staying power, the evidence leans toward the snowball, with caveats. A 2012 study of clients of a US debt settlement firm found that paying accounts off completely, large or small, was linked to going on to clear all of the debt.⁷ As an observational studyobservational study: A study in which researchers record what people already do or are exposed to, rather than assigning anyone to anything. It can show that two things go together, not that one causes the other, because the groups being compared may differ in other ways as well.Full entry in the glossary it cannot separate cause from coincidence, yet it is the closest thing to field evidence on who finishes.

The study

Limited evidence

Accounts closed, not dollars repaid, tracked who finished a US debt settlement program

Among clients still active a year after enrolling, those who had closed a larger share of their accounts were more likely to go on to settle every debt, whatever the dollar size of the accounts closed. Once the share of accounts closed was taken into account, the share of dollars repaid did not predict success.⁷

The authors, David Gal and Blakeley McShane, read this as evidence that finishing discrete pieces of a goal can keep people going. The setting limits how far that travels: these clients had stopped paying their creditors while a firm negotiated settlements, so the result may not carry over to someone paying cards down month by month. Debt settlement itself is a separate route from either payoff method: the authors, writing about the US in 2012, place it between credit counseling and bankruptcy in its harm to a person’s credit.⁷

Two further studies lean the same way. Keri Kettle and colleagues reported in 2016, from a field study of people with several debts plus three experiments, that concentrating payments on one account rather than spreading them tended to raise motivation to become debt free, most of all when the payments went to the smallest accounts (we read the abstract only).⁸ Their explanation is that people judge overall progress by the biggest share of any one balance repaid.

In a 2015 laboratory experimentlaboratory experiment: An experiment run under conditions the researchers set up and control, often with students doing short tasks. Control makes cause and effect easier to pin down, but the tasks are simpler than real life, so results do not always carry over to work or home.Full entry in the glossary, Alexander Brown and Joanna Lahey found that people worked through a repetitive task faster when it was split into parts ordered from smallest to largest, yet chose that order least often when given a choice.⁹ The task was retyping strings of characters in a spreadsheet, done by paid volunteers in a university economics lab in Texas, so it says more about effort on a chore than about handling real money.¹⁰

Take two people with the same three debts (an illustration, not a study). One is steadied by watching the total fall each month; the other needs to see an account reach zero before the plan feels real. The snowball’s case rests on people like the second. If you have started repayment plans before and stalled, this research gives some reason to value an early win; if you usually stick to plans, the cheaper order is the sensible default.

Which method fits your situation

There is no overall winner. The better choice depends on how far apart your rates are, how big the small debts are, and how likely you are to stall. One rule comes before both methods: essential bills and debts with serious consequences for missing them come first. Citizens Advice in England, on a page last reviewed in 2019, names rent and mortgage arrears, council tax arrears and energy bills among them.¹¹ Other countries have their own equivalents, so check your local advice service.

Two details are easy to miss. “Closing” an account in the research means paying the balance to zero, not cancelling the card; whether to cancel it afterwards depends partly on how credit scores weigh the credit you use. And a hybrid is allowed: start with one small debt for momentum, then switch to the highest rate.

If the minimums don’t fit, start with free advice

Every payoff method assumes there is money left once the minimums are paid. If there is none, or debt is affecting your sleep, health or safety, free advice and, when needed, crisis support come ahead of any payoff order. By urgency:

• Straight away: if you are in immediate danger, or debt worries have brought thoughts of suicide or self-harm, your local emergency number is the first call. The International Association for Suicide Prevention’s site gives access to a worldwide directory of helplines.¹² As examples, calls and texts to 988 in the US reach a free, confidential lifeline that is open around the clock.¹³ UK readers can reach Samaritans on 116 123, and should call 999 if someone’s life is at stake.¹⁴
• Within weeks: if repayments are eating into rent, food or energy, contact a free debt service. The US Consumer Financial Protection Bureau, in guidance last reviewed in 2023, cautions that a credit counselor can bill for some services even though most counseling organizations are non-profits, so get the price in writing.¹⁵ The UK government’s page on options for dealing with debts refers readers to MoneyHelper, whose pages cover free debt advisory services.¹⁶ Canada’s Financial Consumer Agency says credit counselling comes from not-for-profit and for-profit firms alike, and suggests asking whether the first consultation costs anything.¹⁷ Australians can call the free National Debt Helpline on 1800 007 007.¹⁸ Ireland’s Money Advice and Budgeting Service describes its service as free of charge.¹⁹ Elsewhere, start with a free public or charitable debt service, or ask your country’s financial regulator.
• Once things are steady: list each debt’s balance and rate, then pick an order, so the choice rests on your own numbers rather than on feel.

The bottom line

On cost, at fixed rates, the avalanche wins or ties every time, and the gap grows with the spread between your rates. On behavior, observational and lab research links clearing whole accounts to some people keeping going, which is the snowball’s real case. The avalanche suits a situation where one expensive debt dominates, the snowball one where an early win is what keeps you paying, and either one concentrates your money in a way research links to stronger motivation than paying a little on everything.