debt
Avalanche versus snowball
The rule
Pay the highest-rate debt first, and you save the most money (the avalanche). Pay the smallest debt first, and you feel a quick win (the snowball). Both beat paying only the minimum.
Where it flips
For a disciplined person, the avalanche is simply better. For someone who needs a visible win to stay going, the snowball's small extra cost buys follow-through. Choose for your own mind, not just the spreadsheet.
There are two honest ways to clear debt. The avalanche pays the highest interest rate first. It costs the least interest and clears fastest in pure money terms. The snowball clears the smallest debt first for an early win. It costs a little more, but it keeps people going, and staying motivated is usually the real problem. Ramsey backs the snowball for that very reason. The one plan that always loses is paying only the minimum. That can keep a card alive for over ten years.
A worked example
On a ₹2,00,000 card at 42%, paying only the 5% minimum can take 15 or more years, and cost more in interest than the original amount. A fixed higher payment clears it in a couple of years. [illustrative]
How to spot it
- ·a payoff order chosen on purpose
- ·never paying just the minimum
- ·the interest rate on each debt known
Dave Ramsey · The Total Money Makeover; personal-finance math