How to get out of debt: the snowball or the avalanche method?
Pay the minimum on every debt, then send any extra to just one. The snowball starts with the smallest debt and gives quick motivation; the avalanche starts with the highest interest rate and costs less overall. Pick the method you will actually stick to.
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What do the two methods have in common?
Both start from the same rule: pay the minimum on every debt so no penalties appear, and put everything extra you can into one chosen debt.
When a debt disappears, its payment is added to the payment on the next one. The total stays the same but keeps moving to a new debt, which creates the “snowball” or “avalanche” effect.
How does the snowball work?
You rank your debts by balance, smallest to largest, whatever the interest. You pay the smallest first.
The advantage is psychological: you close the first debt quickly and see progress. For many people, that early win makes the difference between carrying on and giving up.
How does the avalanche work?
You rank your debts by interest rate, highest to lowest, whatever the balance. You pay the most expensive one first.
The advantage is financial: you pay less interest overall. The downside is that the first debt can take a long time, and the lack of a quick win can discourage you.
What does the order look like in an example?
An illustrative example with three debts. The interest rates are made up; check the real ones in your own contracts.
| Debt | Balance | Yearly interest | Snowball | Avalanche |
|---|---|---|---|---|
| Phone on instalments | 2,000 lei | 0% | 1 | 3 |
| Credit card | 5,000 lei | 24% | 2 | 1 |
| Consumer loan | 20,000 lei | 14% | 3 | 2 |
With the snowball you clear the phone first (quickly), then the card. With the avalanche you start with the card, which has the highest rate, and leave the interest-free phone for last.
How do you choose the right method?
- If you need motivation or have many small debts, choose the snowball.
- If the gap between rates is large and numbers motivate you, choose the avalanche.
- If you cannot decide, start with one very small debt to build momentum, then switch to the avalanche.
A method that is perfect on paper does not help if you drop it after two months.
What do you do alongside paying off debts?
- Build a mini emergency fund so you do not take another loan at the first problem.
- Do not take on new debt while you are paying.
- Log each payment and the remaining balance every month.
- Celebrate, modestly, each debt you close.
- Ask your lender whether you can pay early without penalties or renegotiate a rate.
In Family Calculator you can follow instalments as recurring payments and see how much of your income goes to debts each month.
Frequently asked questions
Can I pay early without penalties?
It depends on the contract. Some loans allow free early repayment, others charge a fee. Check your contract or ask the bank before sending extra money.
Emergency fund first or debts first?
Usually a mini-fund first, then split your effort. Without a mini-fund, an emergency can send you straight back into debt.
What do I do with a payment that frees up?
Add it to the payment on the next debt on your list. The money is already in your budget, so you will not feel the difference.
Is this personalised financial advice?
No. It is a general explanation. For complicated situations, such as many loans or overdue debts, talk to a financial adviser.