Student Loan Repayment: Debt Snowball vs. Debt Avalanche

By Kat Tretina

Kat Tretina is a freelance writer based in Orlando, Florida. Her work has been featured in publications like The Huffington Post, Entrepreneur, and more. She is focused on helping people pay down their debt and boost their income.

To cope with the high cost of college, you likely took out several different student loans. According to Saving For College, the average 2019 graduate left school with eight to 12 different student loans.

With so much debt and so many different individual loans, you may be overwhelmed and can’t decide where to start with your repayment. If you want to pay off your loans ahead of schedule, there are two main strategies that financial experts recommend: the debt avalanche and the debt snowball.

Here’s how each of these strategies work and how to decide which approach is right for you.

The difference between the debt snowball and debt avalanche strategies

Both the debt avalanche and debt snowball methods are strategies for paying off your debt early. However, how they work is quite different.

Debt avalanche

With the debt avalanche method, you list all of your student loans from the one with the highest interest rate to the one with the lowest interest rate. You continue making the minimum payments on all of your loans. However, you put any extra money you have toward the loan with the highest interest rate.

Under the debt avalanche, you keep making extra payments toward the debt with the highest interest rate. Once that loan is paid off, you roll over that loan’s monthly payment and pay it toward the loan with the next highest interest rate.

For example, let’s say you had the following loans:

• $10,000 Private student loan at 7% interest
• $15,000 Private student loan at 6.5% interest
• $5,000 Direct Loan at 4.45% interest

In this scenario, you would make extra payments toward the private student loan at 7% interest first with the debt avalanche method. Once that loan was paid off, you’d make extra payments toward the private student loan at 6.5% interest, and then finally you’d tackle the Unsubsidized Direct Loan.

Debt snowball

The debt snowball method is more focused on quick wins. With this approach, you list all of your student loans according to their balance, rather than their interest rate. You continue making the minimum payments on all of them, but you put extra money toward the loan with the smallest balance first.

Once the smallest loan is paid off, you roll your payment toward the loan with the next lowest balance. You continue this process until all of your debt is paid off.

If you had the same loans as in the above example and followed the debt snowball method, you’d pay off the Direct Loan with the $5,000 balance first since it’s the smallest loan. Once that loan was paid off, you’d make extra payments toward the $10,000 private loan, and then you’d pay off the $15,000 private loan.

Pros and cons of the debt avalanche method

The debt avalanche strategy has several benefits and drawbacks:

Pros

• You save more in interest: By tackling the highest-interest debt first, you’ll save more money in interest charges over the length of your loan. Compared to the debt snowball method, using the debt avalanche method can help you save hundreds or even thousands of dollars.
• You’ll pay off the loans faster: Because you’re addressing the highest-interest debt first, there’s less time for interest to accrue on the loan. With less interest building, you can pay off your loans much earlier.

Cons

• You don’t see results as quickly: Because you’re tackling the debt with the highest interest rate rather than the smallest balance, it can take longer before you can pay off a loan.
• You may lose focus: It takes longer to pay off each loan, so it’s easier to lose motivation.

Pros and cons of the debt snowball method

The debt snowball method has the following pros and cons:

Pros

• You get results quickly: Since you’re targeting the loan with the lowest balance first, you’ll pay off individual loans quicker than you would with the debt avalanche method.
• Frees up money to pay down the next loan: You’ll be able to pay off loans quickly and roll the payments toward the next loan, helping you stay focused on your goals.

Cons

• You’ll pay more in interest fees: By paying extra toward the loan with the smallest balance rather than the highest interest rate, you’ll pay more in interest fees than you would if you followed the debt avalanche method.
• It could take longer to pay off your debt: Because you aren’t targeting the loans with the highest interest rate first, more interest can accrue over the length of the loan. The added interest means it will take longer to pay off your loans.

Which strategy is best for paying off student loans?

So which strategy is best for paying off student loans: the debt avalanche or the debt snowball? If your goal is to save as much money as possible and pay off your loans as quickly as you can, the debt avalanche method makes the most financial sense.

Psychologically, the debt snowball may have the advantage. According to a study from the Harvard Business Review, the debt snowball method is the most effective approach over the long-term, as borrowers are more likely to stick to their repayment strategy. However, which strategy is best for you is dependent on your mindset, motivation level, and your determination to pay off your debt.

Managing your student loan debt

Regardless of which repayment strategy you choose, you could save even more money or pay off your loans earlier by refinancing your student loans. When you refinance student loans, you apply for a loan from a private lender for the amount of your current student loans, including both private and federal loans.

The new loan has completely different repayment terms than your old ones, including interest rate, repayment term, and monthly payment. Even better, you’ll only have one student loan with one monthly payment to remember.

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