Debt Snowball vs. Debt Avalanche

Spend a little time with budgeters working hard to pay off debt and you'll hear the question: should you use the snowball method or the avalanche method to pay off debt? Though there are fierce proponents of both methods, Ben and Ernie say... why not both?
Ben shares his hot take on this controversial question, and they discuss a third method for paying off debt: the anger method!
0:00 Intro
1:44 Debt Snowball
8:14 Debt Avalanche
11:24 Debt Bootcamp promo
12:43 Anger Method
15:24 Customize your method; other options to consider
16:54 Ben’s Hot Take
22:33 YNAB Wins
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[@samanthaalberts979]

One tip I found useful, no matter which method you use: if you have extra money to throw at one of your debts, always take part of that extra and add it to an emergency fund. This has saved me so many times because I used to throw everything extra at my target debt, and then something happened and I didn’t have a full paycheck and then not enough to cover other expenses. Even if it is $5+change, add to an emergency fund or your true expenses. Little bits add up. 😁

[@YNABofficial]

+1! Having even a little bit extra cash on hand gives you options! ~Ernie

[@lavonnedynna9754]

My YNAB win: Because I've been using the app for 11 months, watched every YNAB video available, read most YNAB blogs and religiously stare at my budget daily to calm myself when I'm stressed, I was able to indulge in some lovely "extras" for my birthday a few weeks ago. It wasn't so much the purchases themselves that made me feel like a kick-butt, independent, financial queen, but more the satisfaction that I had planned ahead and I had zero guilt about using that money on myself (no little voice inside my head saying I should spend it on more "responsible" obligations). My confidence in functioning as a "real adult" has sky-rocketed across the board, not just in finances. Thank you YNAB!

[@leighspeicher7515]

My YNAB Win - As of today, I am officially out of credit card debt for the first time since I was in college (so, like 20 years!!). Thank you to YNAB for making this moment possible - I never would have gotten here without the app. Truly life changing!

[@elizabethgadsby9641]

Thanks for the shout out! I have some extra accountability to live up to now for meeting my goal 😄 I will definitely celebrate meeting the goal and will embrace the irony of celebrating being worthless to call it a Worthless Party 🤣

[@rjt135]

Whether or not you have debt, you can play the snowball vs. avalanche game. I bounce between variations of the strategies for savings goals.

[@learnandearnwithcathy7033]

This was really helpful to me today. I'm recently divorced and working hard to pay off debt, and my energy is starting to wane. But the momentum is what keeps me going. My car will be paid off next month and I was planning on snowballing, but you have made me think a little more about taking a bit of time to look at my true expenses. I've been throwing so much at debt, my true expenses haven't gotten where they need to be. Being debt free one or two months earlier may not be worth the peace of mind of padding my true expenses. I don't want to be here again, so it gives me something to ponder. YNAB has changed my life! Thanks!

[@michelleyaciuk5398]

My YNAB win! After about a year of using YNAB, bringing my husband onboard, watching the videos, listening to money podcasts, getting rid of our second car not because we couldn’t afford it but because we didn’t want to afford it, now using that money to save up for an EV car, I have everything dailed into a point where my money is boring. Happy that things are boring but need a new way to spend my time. 🤣

[@GaryBlouin]

I did the debt snowball because I had several debts and just wanted some wins to give me confidence. Made a lot of sense to go this route for me - for the most part. Definitely was motivated when I paid off a few debts. I remember having a large credit card debt and even though it wasn't paid off, tons of motivation occurred when my minimum due month over month was getting lower. Note: I paid more than the minimum due but seeing the minimum due drop kept the motivation going. Paying off my student debt - since it was a fixed monthly amount, didn't seem as fun but when I checked my account, they had they expected payoff date and was nice to see that date get shorter and shorter.

[@cjmiller5972]

I was doing the debt avalanche for a little while, but had the opportunity to consolidate all my credit card and personal loans into a refinanced mortgage. Now I only have the mortgage and car payments. The car loan is actually lower interest, but the mortgage is the one I put the extra money on because I just want to save that time and interest on the MUCH larger debt. The other extra money from the debt consolation I'm using to make essential repairs on my house WITHOUT taking a loan out.

[@TamaraHenson1984]

The anger method is called the debt tsunami. You pay it off based on the emotional impact. I totally did a combo. I did the snow ball to get rid of some of the smaller ones, then did tsunami to pay off the one that had a promotion because I didn't want to forget to pay it off in time and then finished it up with the avalanche. I also did stop to think about where the last payment went to and for a while I did add it into my other minimums but then I changed it up and did only half of it into the debt while the other half was split in half to have 25% back in the budget for true expenses and 25% to emergency fund

[@rebeccaexplorer5969]

I’ll be out of debt next month (completely-woo!). Paying off $40,000 (credit cards and student loans) in 3 years. Didn’t get serious about it until 1.5 years ago. I did the debt snowball method because I needed the small wins over time. Didn’t think I was going to ever get my student loans paid off but let me tell you, you can do it and it’s COMPLETELY worth it!

[@arambladen3087]

I use the "Avalanch Method" because I want to save on interest in the long run!! HOWEVER... after hearing about tackling debt that made a person the "MOST ANGRIEST" or FRUSTRATED, I was like "wooow!! I have something like that too!!!! I should do that at once!!!!" 🤣🤣 I do have a debt that makes me THE ATMOST ANGRIEST and FRUSTRATED!!!

[@amyg3525]

This was so helpful! I want to share my #YNABwin … I am turning 50 this August… just before COVID hit I finally finished a degree I’d started years and years ago. My job started paying us extra “hazard pay” for COVID and have kept it up all throughout. I took every cent of that and put 1/2 in my retirement and put the other 1/2 toward a down payment on a home… which I just closed on last week. Watching that savings goal grow week-by-week over the past two years gave me so much motivation and joy. I’m also debt free aside of this mortgage and my student loans, which are minimal. You guys are incredible and I can’t wait for you next video!

[@cdw81960]

Pre-YNAB we were trying to attack high-interest debt first, but we never seemed to be able to make a difference. Then we thought let's just pay off something that matters, i.e our car loan. We went crazy went all the way back to starving student mode and paid off the car pretty quickly. I won't say it wasn't stressful, but it worked. Not sure I'd go that far again. But then, bumps in the road happen. That same car was stolen 6 months later. We tried living with one car, just didn't work. So then we have another auto loan only worse than the one we just paid off. Demoralizing. We floundered for a few years trying to make ends meet but just kept getting further in debt. We weren't addressing the true expenses. I posted on this before, but a friend introduced us to YNAB. We kind of tried making it work off and on for a few years. It was about that time that I stumbled onto Nick True's videos. Suddenly it started to make sense and more videos were being put out by YNAB and we were on a roll. After we got all the categories truly covered with actual not perceived, we were now in a place where we could actually make a difference toward paying off debt. Our first goal was credit cards. That transfer debt for 0% interest for some unrealistic payoff period was a well-played credit card company ploy. Just like casinos, the banks always win. So, for us, the credit cards were our angry approach to debt paydown. Once one was paid off we attacked another, then another. We actually started to see savings start to grow. Then we realized student loan is so close lets just take some savings and knock it out. Yep, a little more to throw toward credit card debt. We were on a roll and pumped. Now we have no credit card debt, a car loan months away from being paid off. We still have the mortgage and it is next. We did slow the process and increased some of our other discretionary spending and life feels good. Savings is at a level where we have very little trouble rolling with the punches. YNAB made this possible, not just the application, but all the extras; videos, support groups, and the community behind it that keeps people motivated. Thanks.

[@YNABofficial]

Yes, we have the tool and the support, but it sounds like you did all the hard work! And your persistence is very impressive! Thank you so much for sharing! ~Ernie

[@MichaelGabriele]

Tonight, I'm alone in my apartment. I could have chosen to play a video game but I'm choosing instead to watch the new Budget Nerds episode. And I don't even have a debt. WHAT'S WRONG WITH ME??

[@robindebates]

You may be a budget nerd if...

[@YNABofficial]

Seems normal to me! 🤣 ~Ernie

[@grammadee]

I know! Right 😂😂😂

[@Knittingotaku]

I heard about this debt payoff method a while ago. But sadly I can’t remember from who. The method has you pay off by the minimum monthly payment. You work on paying off the largest monthly payment you can. This is for people whose budget are really tight so it’s to give them more breathing room and free up more money.

[@yrbff]

Every time I'm expecting to hear _Bert_ & Ernie. Another strategy (and the one I'm using) is slow-paying your debt, while funneling money into income generating assets. Would love to hear more about that and how YNAB could be a useful tool for evaluating if that option makes sense for you.

[@YNABofficial]

Please tell me you listened to the intro of Category Structures in YNAB! As for that strategy you're using, you might find my future conversation with Matthew helpful (I think it'll drop in May). Matthew is a support rep here, and knows sooooo much about investing. One of the questions he'll be answering is, "How can YNAB help me figure out how much I can afford to invest?" Or "How can YNAB help me figure out how much extra cash I have for priority ABC?" ~Ernie

[@yrbff]

@@YNABofficial Looking forward to it!1

[@anap2916]

I started with snowball method and now I'm using the avalanche method. Most of my credit cards have similar balance. With the avalanche method I can be debt free by 2025, but I think it could be sooner. I took a few workshops with Ernie and he gave me some good tips. Thank you!

[@laurenevam6305]

I focus on whatever debt makes me feel good while paying it off. I don’t care about the methods as such but sometimes doing it this way means I’m focusing on the smallest debt total to get that “win feeling” but in general it’s whatever one I find myself the most annoyed at having. As long as I’m making the minimum payments on the rest, and am hitting my personal goal on total debt payment that’s all that matters to me

[@nicob4599]

I love everything that you have all said. It is transformative and balancing to other information out there. Another way I think you guys could add would be the CASH FLOW INDEX way. CFI means you list the debts by remaining payments so that you finish the one that is closest to being paid off by monthly payments. The idea of this is that you increase the cash flow faster. You find the remaining payments by (ignoring the interest) and just divide the current balance with the minimum payment and write that number down. You then list your debts by lowest to highest months to payoff number

[@grammadee]

That’s a great method! Thanks for another tip!

[@chojay13]

I really appreciate someone associated with financial planning and budgeting to say "you can free up cash flow from your debt snowball even if you havent paid off all your debts". The attempt at the maximum level sacrifice i think is what has ultimately sabotaged me in the past ... I dont plan to sabotage my payoff plan for as long as i can hold it, but its a relief to have someone "give permission" to make my debt payoff journey my own

[@robindebates]

"Ankle biters" re: debts. Love it. :D

[@joanhall3718]

YNAB allowed me to pay off my consumer debt within a year and my student loan in 3. I never would have done it without YNAB.

[@trapspringer9891]

Yeeeeaaah, I love the hot take at the end. Totally agree. I started with the anger method and ended up in the snowball method.

[@lakeisharhyant2045]

Love "The Anger Method"

[@Hope.Akello]

I calculate how long it's going to take to pay the debt, versus how much I get by paying minimum and investing in a mutual fund. I am motivated by increasing my net work.

[@castin9097]

DEBT has nothing to do with numbers really... It is human behavior. With Snowballing deals with that habit and give us enough motivation to stop spending. This works for me.

[@michellel6448]

I think I many try the Snowball. All 4 of my CCs have the same outrageous interest rate of 24.8%🤦🏾‍♀️

[@OscartheChunk]

I think it's funny that I find it kind of disappointing that I only have one debt. I know that sounds beyond stupid. But snowball debt where you consistently see things being conquered really speaks to how I think. So yeah I see the debt going down but it's not like one debt is just KILLED. It has a much more gamified feel to it like tackling a boss before moving on to the next level. So I feel Ben on this one.

[@Jesus-kt5dc]

*The anger method is called the Tsunami method.*

[@YNABofficial]

Ohh, I didn't know that! And it makes sense. Thanks Jesus! ~Ernie

[@stephaniejane306]

I have a #YNABwin. After my dad's payout from work since his terminal illness diagnosis we were able to fill out the rest of the budget til the end of the year with extra.#trulyblessed But also this month I could help my mum finally be Debt free with the help of YNAB. Took just over two years - a personal loan, a car loan, and 2 credit cards but we did it!!

[@conureron3792]

With interest rates rising, might need to opt with the debt avalanche method. However, Dave Ramsey makes a compelling argument about the momentum you get paying off each debt.

[@chaseziegler1490]

Dave Ramsey never fully talks about what j think the biggest argument is for the snowball. Each debt you pay off reduces your required monthly cash flow. This means that when there's an emergency, you can just pay the minimum on you focus debt, and help prevent you from needing to borrow more.

[@chaseziegler1490]

Also, most of the time, the smaller debts tend to have higher interest rates so the two methods tend to line up for the most part.

[@alexismarkowski7517]

Topic request for a future episode: the perennial question- is it better to invest/save for retirement, or pay down debt? Or a little of both? Or maybe it doesn’t matter much since both increase your net worth? My student debt is very low interest but I HATE IT and want it gone. But people tell me it makes more sense to put the money towards retirement. Help me, Budget Nerds!

[@PatrikKron]

It's something you need to balance. If the interest rate is low on the dept you are likely to make more by investing it. What makes it completed is the "_likely_". You are guaranteed to have more money buy paying down your student loan faster (assuming >0% interest and no penalty for paying at another pace and assuming you don't get a higher interest rate at a savings account) than if you pay it of at normal speed. But if you choose to invest the money instead you are "just" likely to be better of than if you don't invest it. For me, I choose to pay of my student loan at standard pace and instead invest. But for a home loan with just a bit higher interest rate I would probably pay it down at an increased pace until I've payed it down to ~60% to not risk having a higher loan than the house is worth if the housing-market where to fall. (In my country you can't just stop paying and it becoming the banks problem, you are still in the dept even if the bank take the home (the home value is deducted from the loan amount)).

[@YNABofficial]

Such a great topic, and I've put it on our list to consider! In the meantime, sounds like you're on the right track, Alexis, because you're absolutely right, it really doesn't matter which you choose-both leave you better off than before. And you can always change your plan! So if you'd sleep better not having a monthly payment to the student loan provider, get rid of that sucker and then reconsider your priorities! ~Ernie

[@michellel6448]

So what do you do one you've completely paid down/off the first CC? Close the account? Doesn't that hurt your credit?🤷🏾‍♀️

[@YNABofficial]

Closing the account is an option. I guess it really depends on a lot of other circumstances. Personally, I closed the accounts because I was ok with my credit take a short term hit, and I wasn't needing my credit score for anything immediate (giving it time to then recover). ~Ernie

[@annodeitermann2409]

Ben's Hot Take is more like the Chill Yourself Out Take ;D

[@ksk881]

I've never had more than one big debt at a time (usually a car loan), so I always made extra payments to pay the loan off early. I have also always lived in apartments because that's what I liked, and I never felt that I made enough money for home ownership and all that that entailed financially. However, I'm now retired, and I don't have the money , or the assets of a big house, boat, etc. that other people seem to have. Since I started YNAB several months ago, I've learned so much. It's true that there are a lot of "things" that I don't have but I also don't have debt of any kind. YNAB has taught me how to plan for the future expenses that are definitely going to happen that used to have me scrambling for money to pay them (car insurance, car repairs, new cell phone, etc.). I'm more relaxed knowing that I have the money before I need it because it's already in the. budget Future debt prevention has been the biggest YNAB win for me because it allows me to keep the money that I managed to save where it belongs instead of paying for things I didn't expect or plan for. Your "hot take" of future debt prevention is the most important part of my YNAB experience, along with getting one month ahead in my bills. I think that those of us with lesser amounts of available money need YNAB the most!

[@conureron3792]

Would love to delve into the (potential) data mining available with, or in, YNAB.

[@sterlling1]

Nerd Soup