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- The snowball vs avalanche method of paying off debt
Personal Loan
The battle of debt strategies: Snowball or Avalanche?
Debt repayment is more than just dues
Debt repayment isn’t just about clearing dues—it’s also about securing your financial future. In this respect, the Snowball and Avalanche methods are two of the most sought-after ways to repay debt in India today.
What is the snowball method?
The Snowball Method is a debt repayment strategy where you focus on clearing the smallest debt first while making minimum payments on the rest. With this approach to debt repayments, when your smallest debt is paid off, you can put that freed-up capital into your next smallest debt, and so on. Over time, it helps you stay disciplined with your repayment schedule.
Example:
- Let's assume that you have three debts: ₹5,000, ₹12,000, and ₹20,000
- Begin repaying with the smallest amount of ₹5,000 first
- Next, use that freed-up amount to pay off the ₹12,000 debt
- After that, target ₹20,000 with your new, much higher, repayment corpus
- Repeat these simple steps until you are completely debt-free
What is the avalanche method?
The Avalanche Method focuses on reducing interest costs. You prioritise debts with the highest interest rate first while paying the minimum on others. Once the costliest debt is cleared, move to the next highest. This method saves the most money over time.
Example:
- You owe on a credit card at 36% and a personal loan at 15%
- Pay off the credit card first to stop high interest from piling up
- Then shift attention to the personal loan
- You clear debt faster and save more in the long run
Conclusion
The Snowball Method helps you build repayment habits and gives you fast wins, perfect if you value motivation. The Avalanche Method will save more money in the long run, ideal if you have several high-interest debts and want maximum savings.
Whichever method you choose, every rupee that you save from paying off debt faster can be redirected into smart investments, such as fixed deposits, mutual funds, or even a SIP. This transforms debt elimination into wealth creation over time.
Disclaimer: This article is for information purposes only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
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