How to get out of debt: the snowball or avalanche method

The order you pay your debts in and what you put towards them each month change how long it takes and how much interest you pay.

Where to start

List all your debts: what you owe, the interest rate and the minimum payment on each. Then decide how much you can put towards them each month in total. That budget, kept up over time, is what shortens the road the most.

Two ways to order the payments

You always pay the minimum on every debt and put whatever is left towards just one:

• Avalanche: the highest interest rate first. It pays the least interest.
• Snowball: the smallest balance first. You close debts sooner, which helps you keep going.

In both, when a debt is cleared, its payment rolls over to the next one. That is why each debt is paid off faster than the one before.

How much paying more matters

With four debts (a 2,500 credit card at 22%, an 8,000 car loan at 7%, a 4,000 personal loan at 11% and 600 of store finance at 18%), the minimum payments add up to 425 a month. Keeping up those 425 every month and rolling each cleared payment into the next debt, you are debt-free in 44 months and pay 3,277 in interest. With 600 a month, 29 months and 1,774 in interest. With 800, 21 months and 1,242.

Tips that help

• Stop adding new debt while you pay off the old: take the card off your phone if you need to.
• Negotiate the rate on the most expensive debts or look for a consolidation loan with a lower total cost (compare the APR and total cost, not just the payment).
• Celebrate every debt you close and move its payment to the next one without touching it.
• If you cannot cover the minimums, talk to your creditors or get debt advice before you stop paying.

Compare both methods with your own debts in debt snowball vs avalanche, or look at a single debt with the debt payoff calculator.

Run your own numbers