Paying off your debt can’t be easy at all. Whether it’s a rainy day or a sunny day, the minimum payments simply don’t care.
The only way to escape from this cruelty is to pay off your debt as fast as possible.
The two popular methods of paying off your debts are:
- Debt snowball method
- Debt avalanche method
We will see real-case examples to pay off your debt quickly by using the snowball vs avalanche calculator.
Debt snowball method:
If you have numerous debt payments simultaneously, it could be soul-sucking.
If you lost your motivation to pay off your debt, the snowball method can be very useful.
In the snowball method, you will go all in to pay with the extra money you have on the debt with the least interest rate first by paying the minimum payments on the other debts. Then you move to the next debt with a higher interest rate.
In other words, You knock out the easy guy first!
Once you clear off your small debt, it motivates you psychologically to pay the higher interest rate debts.
Advantages & disadvantages of the snowball method:
Advantages:
- Focus on paying off small debts is motivating
- It doesn’t lead to burnout
- Number of debt reduces quickly
Disadvantages:
- Lead to more interest payment
- Takes more time to finish off your debts.
Related read: 13 Extreme frugal living tips to try
Debt avalanche method:
The avalanche method debt repayment process varies from the snowball method. The things you do in this method will be inverse of the snowball method.
In the avalanche debt payment method, you will first tackle the debt with a higher interest rate with the extra amount you have, meanwhile making the minimum payments on other debts and then you move to the next debt with a smaller interest rate.
In other words, You take the tough guy in the crowd!
If you have the grit to tackle the higher interest rate loan and want to escape from paying so much to the credit card firms or banks. Then the debt avalanche method is perfect for you.
Advantages & disadvantages of the avalanche method:
Advantages
- Achieving debt-free status is shorter
- Pay less in interest
Disadvantages
- Can Lead to burnout
- First win comes slower than the snowball method.
Snowball vs avalanche calculator method
But the real question is which method helps you to pay sooner?
Snowball method or the avalanche method? Let’s see by using the snowball vs avalanche calculator excel sheet.
Alright, let us see the case study by using My debt. I too have debts. Please check it!
You can see I have credit card debt, a Gold loan, also I owe some 30K to my pal.
Snowball method:
If I go by the snowball method, then my debt repayment order will be like the below:
- 30k which I owe to my friend
- 63K in credit card loan
- 88K in Gold loan
Let’s see how it goes.
In the snowball method, where the total monthly payment is 14,000. The minimum payment for all 3 debts is 12,000 and the remaining 2000 is used to make an extra payment on debt with the lowest interest rate.
It takes close to 15 months to pay off the entire and to be debt free.
You can download this excel from: https://www.vertex42.com/
Avalanche method:
If I go by the avalanche method, then my debt repayment order will be like the below:
- 63K in credit card
- 88k in Gold loan
- 30k which I owe to my friend
In the avalanche method, where the total monthly payment is 14,000. The minimum payment for all 3 debts is 12,000 and the remaining 2000 is used to make an extra payment on debts with the highest interest rate.
It takes close to 15 months to pay off the entire and to be debt free.
Which method is quicker?
In short, none in this scenario, because of the same monthly payment. But in many cases, the Debt avalanche method helps you to pay off quickly compared to the snowball method.
How much do you potentially save?
In the snowball method, I paid about 21,208 as the total interest amount.
In the avalanche method, I paid about 17,851 as the total interest amount.
If I go by the debt avalanche method, I can save about 3,350 from the interest payment.
Conclusion
Having the aim to become debt free is a very good thing. We can wipe off a huge amount of anxiety in our life by being debt free.
Whether you choose the debt snowball method or the debt avalanche method, it may be a bit different journey but the destination it reaches is the same “debt free”
Thank you for reading. I hope the snowball vs avalanche calculator helped you a bit little.
Take care & stay safe.
