How to Best Get Out of Debt: The Snowball vs. Avalanche Method

Take Control of Your Debt

Debt can feel overwhelming, whether it’s from credit cards, student loans, or unexpected medical bills. The good news? With the right strategy, getting out of debt is achievable.

At Spectre Financial, we specialize in helping Canadians regain control of their finances. Two of the most popular strategies for paying off debt—the Snowball Method and the Avalanche Method—each offer unique benefits. In this guide, we’ll explore these approaches, discuss their pros and cons, and help you choose the one that’s right for you.

Why a Debt Repayment Strategy Is Essential

Without a clear plan, it’s easy to feel stuck or make minimal progress toward becoming debt-free. A debt repayment strategy helps you:

• Stay Motivated: Breaking your debt into smaller, manageable steps can make the process less intimidating.

• Save Money: Strategic repayment minimizes interest costs over time.

• Improve Your Credit Score: Consistent debt repayment demonstrates financial responsibility to lenders.

• Free Up Income: Paying off debt creates room in your budget for savings, investments, or other goals.

A financial planner, like those at Spectre Financial, can guide you in choosing the best debt repayment strategy and provide support along the way.

What Is the Snowball Method?

The Snowball Method prioritizes paying off your smallest debt first while making minimum payments on your other debts. Once the smallest debt is eliminated, you roll its payment amount into the next smallest debt, and so on.

How It Works:

1. List all your debts in order of balance (smallest to largest).

2. Pay the minimum on all debts except the smallest.

3. Direct any extra funds toward the smallest debt until it’s paid off.

4. Move on to the next smallest debt and repeat.

   
   

Example:

Debt Type	Balance	Interest Rate	Monthly Payment
Credit Card A	$1,000	20%	$50
Personal Loan	$3,000	10%	$150
Credit Card B	$5,000	18%	$100

Under the Snowball Method, you’d focus on paying off Credit Card A first, regardless of its higher interest rate, because it has the smallest balance.

Pros and Cons of the Snowball Method

Pros:

• Quick Wins: Paying off smaller debts first gives you early victories, boosting motivation.

• Easy to Follow: Focusing on one debt at a time simplifies the repayment process.

Cons:

• More Interest Paid: Prioritizing smaller debts may cost you more in interest over time, especially if larger debts have high interest rates.

What Is the Avalanche Method?

The Avalanche Method prioritizes paying off your debt with the highest interest rate first, while making minimum payments on all other debts. Once the highest-interest debt is paid off, you direct extra funds to the debt with the next highest interest rate.

How It Works:

1. List all your debts in order of interest rate (highest to lowest).

2. Pay the minimum on all debts except the one with the highest interest rate.

3. Direct any extra funds toward the highest-interest debt until it’s paid off.

4. Move on to the next highest-interest debt and repeat.

Example:

Debt Type	Balance	Interest Rate	Monthly Payment
Credit Card A	$1,000	20%	$50
Credit Card B	$5,000	18%	$100
Personal Loan	$3,000	10%	$150

Under the Avalanche Method, you’d focus on paying off Credit Card A first because it has the highest interest rate.

Pros and Cons of the Avalanche Method

Pros:

• Saves Money: Tackling high-interest debt first minimizes overall interest paid.

• Efficient: This method reduces the total time and cost of becoming debt-free.

Cons:

• Slower Progress: It may take longer to pay off your first debt, which can feel discouraging.

• Complex Tracking: Managing debts based on interest rates can be more challenging to track.

Snowball vs. Avalanche: Which Should You Choose?

Choosing between the Snowball and Avalanche methods depends on your financial situation and personal preferences.

Choose the Snowball Method if:

• You’re motivated by small wins and need a psychological boost to stay on track.

• You’re dealing with several small debts that you want to eliminate quickly.

Choose the Avalanche Method if:

• Your goal is to save the most money on interest.

• You can stay disciplined and motivated, even without quick results.

How to Decide on a Debt Repayment Strategy

Not sure which method is right for you? Here are some questions to consider:

1. What’s Your Personality Type?Are you motivated by small victories (Snowball) or by saving money long-term (Avalanche)?

2. How Much High-Interest Debt Do You Have?If high-interest debt is a significant portion of what you owe, the Avalanche Method may save you more money.

3. Do You Need Quick Progress?If seeing quick results helps you stay committed, the Snowball Method might be the better choice.

4. What’s Your Financial Goal Beyond Debt?Are you aiming to free up cash for savings, investments, or other financial priorities? A financial planner can help you integrate your debt repayment strategy into a broader financial plan.

Tips for Accelerating Debt Repayment

Regardless of which method you choose, these tips can help you get out of debt faster:

• Increase Your Income: Take on a side hustle, sell unused items, or seek a raise at work to generate extra funds.

• Cut Unnecessary Expenses: Trim discretionary spending, like dining out or subscription services, and redirect the savings toward debt repayment.

• Automate Payments: Set up automatic payments to ensure you stay on schedule and avoid late fees.

• Negotiate Lower Interest Rates: Contact lenders to explore options for reducing interest rates or consolidating debt.

How Spectre Financial Helps You Get Out of Debt

At Spectre Financial, we understand that getting out of debt requires more than just discipline—it requires a plan. Here’s how we support our clients:

• Debt Analysis: We evaluate your debts, interest rates, and financial goals to recommend the best repayment strategy.

• Budget Creation: We help you allocate funds efficiently, ensuring debt repayment fits within your budget.

• Ongoing Support: From tracking your progress to making adjustments, we’re with you every step of the way.

• Long-Term Financial Planning: Once you’re debt-free, we help you focus on building wealth and achieving financial stability.

Ready to take control of your debt and start fresh? Schedule a consultation with Spectre Financial today and let us help you regain financial freedom.

FAQs

Which debt repayment method is better—Snowball or Avalanche?

It depends on your goals. The Snowball Method provides quick wins, while the Avalanche Method saves money on interest.

Can I combine both methods?

Yes, you can customize your approach by starting with the Snowball Method for motivation, then switching to the Avalanche Method for efficiency.

How long will it take to get out of debt?

This depends on the size of your debt, your repayment strategy, and how much extra you can contribute each month.

Can a financial planner help with debt repayment?

Absolutely. A financial planner creates personalized strategies and provides accountability to help you stay on track.

What’s the first step in getting out of debt?

Start by listing all your debts, including balances, interest rates, and minimum payments. From there, choose a repayment strategy that works for you.

Take Charge of Your Financial Future

Getting out of debt is a powerful step toward financial freedom. Whether you choose the Snowball or Avalanche Method, having a clear strategy and staying committed will help you achieve your goals.

At Spectre Financial, we’re here to guide you every step of the way. Book a consultation today and let us help you regain control of your finances and build a brighter financial future.