Happy couple working on financial expenses at home

Debt reduction: sunny skies ahead

Have you ever felt like you’re buried under an avalanche of debt? Or that your spending has snowballed out of control?

Well, those two winter weather watchwords – avalanche and snowball – are precisely what can help you get back in the black.

The avalanche method and the snowball method are two strategies for paying off debt. They’re useful when you owe money to more than one entity – like on credit card, a retail credit card, a line of credit and a car loan – and don’t know how to start paying it down. They both can get the job done, but in different ways.

Snowball method: Rolling up your debts

The snowball method involves targeting your smallest debt, and paying it off first. You still have to service your other debts, making the minimum monthly payments, but your focus is on eliminating one debt at a time, starting with the smallest. After that debt has been paid off, the next smallest becomes the focus, and so on. Little by little, like rolling a snowball that grows in size with every turn, your debts decrease.

According to personal finance expert Rubina Ahmed-Haq, the snowball method is ideal for people who tend to get overwhelmed and like to pick the low-hanging fruit first.

“Using the snowball method, you can feel more accomplished more quickly because you see real progress in paying down and getting rid of those smaller debts,” said Ahmed-Haq. “The other side of it is, it costs you more money.”

That’s because the snowball method doesn’t take interest rates into consideration. If a person is putting money toward, for instance, a line of credit, which usually has a lower interest rate, they’re not making much progress on clearing their retail credit card, which would typically have a higher interest rate, often close to 30%!

Avalanche method: Attacking interest

The avalanche method, on the other hand, prioritizes a person’s highest-interest debt, regardless of the size of the debt itself. If you owe $650 on your department store credit card, at an interest rate of 29.9%, and $3,500 on your line of credit, at an interest rate of 3.5%, you would focus on the department store card first, and then the line of credit.

“I always promote the technique that saves the most money,” said Ahmed-Haq, who runs a website called AlwaysSaveMoney.com. “But I understand that a lot of people get overwhelmed because the highest-interest debt might also be the biggest – like your credit card after the holidays – and the lowest-interest debt might just be a small utility bill that’s overdue. So, it’s really easy to pay that off and feel accomplished before moving on to the scarier debts.”

Consolidation: A clear forecast

Ahmed-Haq also suggests debt consolidation as a third debt-repayment method, which is a combination of the snowball and avalanche methods. This method involves paying off your debt with a low-interest loan, such as a line of credit. Then you just focus on the one debt, and keep paying it down until it’s gone.

“You feel really accomplished, like with the snowball method, because you’re quickly eliminating most of the debts you have,” said Ahmed-Haq. “Then you have all that debt consolidated into one bill and you can apply the avalanche method where you’re really pounding that down with the biggest payments you can make because you know it’s the only debt you have.”

Most importantly, when it comes to debt repayment: Just do it!

“Stop thinking about it,” said Ahmed-Haq. “Figure out what works best for you, and just start.”


416029 CAN/US/UK (02/18)

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Nancy Carr

Nancy Carr lives and works in Toronto as a freelance writer and editor. She’s a former business reporter who enjoys writing about personal finance and real estate, as well as health, travel and family matters. You can reach her on Twitter (@NancyCarrComms) or LinkedIn.