Two well-known ways to pay off several debts are the snowball and the avalanche. Both start the same way: pay the minimum on everything, and put every extra rand on one debt. The only difference is which debt goes first.
This article is general information, not financial advice. To run your own numbers, try the free debt payoff calculator.
Before you start
- List every debt with its balance, interest rate and minimum payment. Your statements show all three.
- Work out one amount you can add every month, even a small one.
- Keep paying every minimum. Missed payments can add fees and show on your credit record.
The snowball method
Put the extra on your smallest balance, whatever its rate. When it clears, add what you were paying on it to the next smallest. The amount going to the next debt grows each time, like a snowball rolling downhill.
Its appeal is early wins. You get to close an account and stop a debit order sooner, which many people find keeps them going.
The avalanche method
Put the extra on your highest interest rate, whatever its balance. When it clears, move on to the next highest rate. Because the most expensive debt goes first, this method costs the least interest.
The catch is that your highest rate may be on a large balance, so the first debt can take a while to disappear.
The same debts, both ways
Say you owe this, and can pay R1,500 a month on top of your minimums:
| Debt | Balance | Rate | Minimum |
|---|---|---|---|
| Clothing account | R6,000 | 18% | R300 |
| Credit card | R35,000 | 20.75% | R1,100 |
| Personal loan | R60,000 | 24% | R1,900 |
Here is how the two methods compare:
| Method | Snowball | Avalanche |
|---|---|---|
| First debt gone | 4 months | 1 year 10 months |
| Debt-free | 2 years 4 months | 2 years 3 months |
| Total interest | R29,794 | R28,166 |
The avalanche saves R1,629 in interest. The snowball gets the first debt out of the way sooner.
Which one to choose
The avalanche is cheaper or equal on paper. How much cheaper depends on your debts: when your rates are close together, the gap can be small, and an early win may be worth more to you than the difference. A plan you keep following beats a slightly cheaper one you drop after 3 months.
The calculator shows both on your own numbers, including when each debt clears.
Worth checking
- Before paying a loan off early, check your agreement for any early settlement charges.
- Home loans and vehicle finance usually have lower rates than credit cards and store accounts, so they tend to come last in an avalanche.
- A consolidation loan only helps if the new rate and fees really cost less. See how debt restructuring works.
If you can't meet your minimums
Both methods need some money left after the minimums. If there isn't any, a different route may fit better. See how debt review works in South Africa.
