Debt Avalanche vs Debt Snowball: Which method to choose to clear loans? Clear smaller bill or tackle more interest?

When several loan payments arrive together, deciding where to start can feel confusing. Should you pay the smallest bill or tackle the debt that charges the most interest?

Two repayment methods offer different answers. Debt avalanche focuses on reducing interest costs. The debt snowball focuses on quick wins that encourage you to keep going.

Both start with the same rule: make the required payment on every debt. Then, use any extra money to pay off one debt faster.

Suppose you have two debts. You owe ₹10,000 on a loan at 12% annual interest. You also owe ₹40,000 on a credit card that charges 36% annual interest.

You have already made the required monthly payments on both. After meeting household expenses, you have another ₹5,000 available for repayment.

Where should this extra ₹5,000 go? That is the choice these methods help you make.

Debt Avalanche: Clear expensive debt first

With an avalanche, you put the extra ₹5,000 towards the credit card. Its interest rate is higher even though its balance is bigger. Why does this help? Consider what ₹5,000 costs you in interest.

At 36% annual interest, ₹5,000 accrues roughly ₹150 in interest over one month. At 12%, the same amount attracts roughly ₹50.

Note: These simplified figures assume monthly interest equals the annual rate divided by 12. Actual lender calculations may differ.

Reducing the card balance by ₹5,000 therefore saves more interest over the following month. The difference is roughly ₹100, assuming that amount otherwise remained unpaid throughout the month.

Continue directing extra money towards the card until it is cleared. Then, focus on the other loan.

An avalanche generally saves more interest when your repayment budget stays the same. It suits people who feel encouraged by lower costs and can wait for results.

Debt Snowball: Clear small debt first

With snowball, the extra ₹5,000 goes towards the smaller loan. Against a ₹10,000 balance, that payment removes half the amount owed.

Further interest can still apply, so another ₹5,000 may not completely close it. However, finishing this smaller debt is closer than clearing the ₹40,000 card balance.

Suppose you clear the ₹10,000 loan with two monthly repayments of ₹5,000 each. Assume each repayment occurs at the start of the month, with interest paid separately.

Choosing this loan over the costlier card adds roughly ₹100 interest in month one. In month two, the extra interest rises to roughly ₹200.

You pay about ₹300 more interest over two months by choosing a snowball. However, once you finish the smaller loan, you may be encouraged to continue.

Once the smaller loan ends, move its former payments towards the card. Add any extra repayment money.

Seeing one debt disappear can make the remaining task feel less overwhelming. This approach may suit someone who needs visible progress to stay motivated.

The drawback is that the expensive card receives extra attention later. That delay can mean paying more interest overall.

Which approach matches your habits?

Choose Debt Avalanche if saving interest keeps you committed. Choose Debt Snowball if clearing smaller balances helps you continue when repayment feels tiring.

Neither method excuses missing required payments on your other debts. Both depend on putting extra money towards repayment.

Before choosing, check whether additional loan repayments attract charges. Also, decide how much you can afford without neglecting essential expenses.

Your choice need not impress anyone else. It should help you keep paying, month after month. The cheapest plan helps only when you follow it. Quick wins help only when they encourage further repayment.