This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
Two ways to attack your debts
When you have several debts and some extra money each month, you pay the minimum on every debt and send the extra to one of them. When that debt is gone, its payment rolls over to the next one. The only question is the order:
- Debt avalanche: pay the highest interest rate first. It always costs the least interest.
- Debt snowball: pay the smallest balance first. You clear a debt sooner, which many people find motivating. Personal finance author Dave Ramsey made the method popular.
When the smallest debt also has the highest rate, both methods give the same order and the same result.
How the calculator works
The calculator follows both plans month by month for two debts. Your total monthly payment stays the same from start to finish: the two minimum payments plus the extra amount. While the first target debt is being paid off, the other debt receives only its minimum payment. Afterward, the whole amount goes to the remaining debt. The total interest is everything you pay minus the starting balances.
Example
- Debt A: $6,000 credit card at 22.9%, minimum $180
- Debt B: $1,500 personal loan at 9.9%, minimum $60
- Extra: $200 a month, so $440 in total
The avalanche pays the card first; the snowball pays the small loan first. Both plans are debt-free in about 21 months, but the avalanche costs $1,377 in interest against $1,578 for the snowball, a saving of about $201. The snowball clears the first debt in a few months, while the avalanche takes more than a year to clear its first target.
Which method to choose
Research on consumer behavior, including a 2016 study in the Harvard Business Review, suggests that people who focus on clearing small balances are more likely to stick with their plan. If the interest saved is modest, as in the example, the snowball may be worth it. If one debt has a much higher rate and a large balance, the avalanche can save hundreds or thousands of dollars.
Tips
- Stop adding to the debts you are paying off; otherwise neither method works.
- Keep a small emergency fund so an unexpected bill does not go back on a card.
- Ask about a balance transfer or a lower rate: cutting the rate helps more than any order.
- If a minimum payment does not cover the monthly interest, the balance will never go down. The calculator flags this case.
Limits
The calculator assumes fixed rates, no new charges, no fees and a constant monthly payment. Real credit card minimums usually shrink as the balance falls; here the total payment stays fixed, which is how both methods are meant to be followed.