WalletPrep worksheet · Debt
Should you use the debt snowball or the debt avalanche?
Name ____________________ Date __________
Key ideas
- Avalanche costs less, snowball wins sooner. In Sam's example the avalanche saves $194 in interest, but the snowball clears the first debt in month 6, not month 15.
- Both methods pay every minimum first. All extra money goes to one target debt. Sam's $460 in minimums plus $200 extra makes a $660 monthly budget.
- Freed payments roll to the next debt. When a debt is gone, its minimum joins the extra. Keeping the total at $660 is what makes either method fast.
Vocabulary
- Debt snowball
- A payoff plan where you pay minimums on every debt and put all extra money toward the smallest balance first.
- Debt avalanche
- A payoff plan where you pay minimums on every debt and put all extra money toward the highest interest rate first.
- APR
- Annual percentage rate: the yearly cost of borrowing money, shown as a percentage. It is the number to compare on cards and loans.
- Minimum payment
- The smallest amount you must pay on a credit card or loan by the due date to keep the account in good standing.
- Emergency fund
- Cash set aside only for surprises like a job loss, a car repair or a medical bill. A common goal is 3 to 6 months of essential costs.
- Credit report
- A record of your credit accounts, payments, balances and some public records, kept by each of the three credit bureaus.
Work it out
Sam has three debts: a $1,500 loan at 9% (minimum $60), a $4,000 card at 24% ($120) and a $9,000 car loan at 6.5% ($280). Sam adds $200 a month.
- Personal loan minimum
- Credit card minimum
- Car loan minimum
- Total minimums
- Extra each month
- Monthly debt budget
- Debt-free with either method
- Total interest, snowball
- Total interest, avalanche
- Extra cost of the snowball
Check yourself
You have a $600 card at 18% and a $3,000 card at 27%. Which one does the avalanche pay off first?
- A. The $600 card at 18%
- B. The $3,000 card at 27%
- C. Both equally
Your minimums total $350 and you add $150 extra. A $90 minimum debt is paid off. How much now goes to the next target each month, on top of its own minimum?
- A. $150
- B. $90
- C. $240
- D. $500
What do the snowball and avalanche have in common?
- A. They target the same debt first
- B. They both pay every minimum and send extra to one debt
- C. They always cost the same interest
- D. They need a new loan
Your turn
Write down every debt with its balance, APR and minimum payment. Put the list in avalanche order and in snowball order, enter it in the planner on this page, and choose one. Then set up autopay for every minimum.
Answer key
Should you use the debt snowball or the debt avalanche?
Work it out
- Personal loan minimum$60
- Credit card minimum$120
- Car loan minimum$280
- Total minimums= $460
- Extra each month$200
- Monthly debt budget= $660
- Debt-free with either method2 yr 1 mo
- Total interest, snowball$1,739
- Total interest, avalanche− $1,545
- Extra cost of the snowball= $194
- Minimums are $60 + $120 + $280 = $460. With $200 extra, Sam pays $660 a month until all three are gone.
- Snowball sends the extra to the $1,500 loan first, cleared in month 6. Avalanche targets the 24% card first, cleared in month 15.
- Both finish in month 25. Avalanche interest is about $1,545 and snowball about $1,739, a gap of $1,739 − $1,545 = $194.
Check yourself
- B. The $3,000 card at 27% The avalanche targets the highest APR first, whatever the balance. The snowball would target the $600 card.
- C. $240 The freed $90 minimum joins the $150 extra, so $150 + $90 = $240 goes to the next target. Your total monthly payment stays $500.
- B. They both pay every minimum and send extra to one debt Both pay all minimums and focus the extra on a single target. They only differ in which debt is the target, which can change the total interest.