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# Debt Avalanche vs. Debt Snowball Calculator

 by Jim Wang Email   Print

One of the big debt reduction debates has always been math versus psychology. How much debt you have has more to do with human behavior and psychology than it does with mathematics. People are, for the most part, smart enough to realize the math behind debt. They know that if you charge more than you can pay off, you’ll be in debt.

The same is true for repaying that debt. There are two schools of thought when it comes to repaying debt. You can take the mathematical approach and pay off your highest interest rate debt first, thus reducing your total interest payment. This is commonly referred to as a debt avalanche, a reference to the other, Dave Ramsey method called a debt snowball. A debt snowball is where you pay the smallest debt amount first, then roll that payment into the next smallest debt amount. Your payment grows and grows, your debts are knocked off as quickly as possible, and this provides a psychological boost to help you finish. It’s clearly not optimal, no one disputes that, but it works off psychology and it has worked for a lot of people.

Here’s the key question – how much does the debt snowball cost you over the traditional method? As much debt as we may have, chances are no one goes through the effort of calculating it. We simply pick the one we think is best, either math (avalanche) or psychology (snowball), and we run with it.

What if there was a tool that did this? I found unbury.me, written by Jordan Santell (@jsantell), a calculator that calculates all that for you. If you enter in your debts, your payments, and how much you have to pay each month – it spits out the difference you’ll pay in interest. No more guessing, this is concrete data.

I put in some dummy data just to see how it worked. Two loans:

• \$300 to pay each month
• \$5000 – 6% interest – \$50 minimum payment
• \$6000 – 8% interest – \$75 minimum payment

With the avalanche, I’d be debt free by December 2014 having paid \$1343.92 in interest. With the snowball, I’d be debt free by December 2014 having paid \$1519.60 in interest. Going with the snowball, and it’s psychological boosts, would cost me \$175.68. Is it worth it? Maybe, but at least now I can decide knowing it was going to cost me \$175.68, rather than “more.”

And the calculator is really pretty.

### 8 Responses to “Debt Avalanche vs. Debt Snowball Calculator”

1. Glenn Lasher says:

I ran this computation about a year and a half ago by hand, and came to the conclusion that, for my particular debt pile, the difference between the two is about 1 month’s time and less than 1% difference in the grand totals. I decided then and there to switch from avalanche to snowball on the grounds that I wanted to see some progress.

In my particular case, however, it is worth noting that the highest balances were generally lower interest than the lowest ones. This is no longer the case as the lower-interest items have been creeping their way up the list, even paid only on minimum payments.

2. mannymacho says:

Probably another thing that should be noted (usually excluded from these calculations) is that as you pay off smaller debts, you free up more cash flow that is used to pay off other debts, but is also available for emergencies, etc. I think the snowball method is there to keep you from making years of extra payments on a mortgage, then having something happen and being stuck not able to make the minimum payments on everything.

3. STRONGside says:

That is awesome. My wife and I were disciplined enough to pay off our highest interest rate debts first, but then again, our debts were fairly small, and worked out very nicely in order of largest to smallest, as well as highest interest debts to lowest. The calculator would be a really nice way to get a dollar figure and use that for motivation. For example, “I will save \$175 by paying off these debts in the highest interest rate order. I will keep that in mind as I work towards my goal”.

4. Nice tool…thanks for the find. I don’t carry any debt, other than my mortgage, but if I did I would have to go with the debt avalanche method every time. I’m just too mathematical to deal with knowingly paying more interest for a psychological benefit.

5. Shirley says:

We used the avalanche method to pay off all debt before my husband retired and then the snowball method on the very few things that were left before I retired.

Now I find myself paying things like auto unsurance bi-annually rather than monthly to avoid the \$3 monthly fee.

6. skylog says:

nice post and nice find on the tool! it is an interesting battle between math and psycholgy. just another example of how each person must find the method that works for them the best. while it makes the most “sense” to go with the least amount of interest paid, this method simply does not work for everyone.

7. Coyote Lovely says:

I know someone who has a quarter of a million dollars of student loan debt because they left medical school due to a disability. There’s no way this debt is ever getting paid, not even a little bit. Dave Ramsey didn’t address the question other than to say that student loans have to be paid (on some kind of spiritual basis). What part of ‘disabled, unable to work, as a physician or anything else that would ever have a chance of paying back that kind of loan’ don’t these people grasp?

• Deb says:

CL,

Tough luck. I have a sis in law that has 3 masters, and works as a waitress. She moves every 3 months to avoid creditors. SHE SIGNED FOR THE LOANS and so did you friend. THEY OWE THE DEBT. THEY PAID FOR A SERVICE. I am tired of hearing sob stories. WAAA.

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