The order to pay off debt

If you have several debts and some money left over each month, the question is what order to pay them in. There are two standard answers, and people argue about them with surprising heat. Both work. They’re just optimizing for different things.

First, the part both methods agree on: make the minimum payment on everything, every month, no matter what. The ordering question is only about where the extra goes.

Avalanche: highest interest rate first

Point every spare dollar at the debt with the highest rate, and when it’s gone, move to the next highest. This is the mathematically correct answer. Interest is the price you pay to hold a debt, and the highest rate is the most expensive debt to keep, so you evict it first.

Say you have three debts: a $3,000 credit card at 24%, a $1,500 store card at 18%, and an $8,000 car loan at 7%. The avalanche order is exactly that. The credit card costs about $60 a month in interest just to exist. The car loan, despite being far bigger, costs about $47. Killing the 24% first means every month afterward you bleed less, and over the full payoff the savings can run to hundreds of dollars.

Snowball: smallest balance first

Point every spare dollar at the smallest debt, regardless of rate. In the example above, you’d hit the $1,500 store card first, even at 18%.

The case for it is human rather than mathematical. With the snowball you get a win fast. One account closed, one bill gone, one less thing in your head. Then your payments concentrate on the next one and the wins keep coming. Researchers who study this find that people who clear small accounts early are more likely to stick with a payoff plan, and a plan you stick with beats a plan you abandon by any amount of interest.

So which one?

Run both orders on your own debts and look at the difference in total interest. Sometimes it’s large, and the avalanche earns its keep. Often it’s smaller than you’d expect, a few hundred dollars over a couple of years, and then the honest question is about you, not the spreadsheet. If you’ve started debt payoff before and quit, that’s information. Buy the momentum.

There’s also nothing wrong with a hybrid: knock out one tiny balance for the morale, then switch to highest-rate ordering.

One caution. Whatever order you pick, be careful with consolidation offers and balance transfers that promise to simplify everything. Some genuinely help. Some just reset the clock with fees attached. Read the rate that applies after the promotional period, not the rate in the headline.

This is education, not personalized advice, and your situation may have wrinkles a short post can’t see. If you want to sit down and run your numbers both ways, that’s a thing I’m glad to do with you, free, no pitch. Reach out.