Debt payoff calculator: snowball and avalanche

How does a debt payoff calculator compare snowball and avalanche?

Both methods use one fixed monthly budget: the minimum on every debt plus an extra amount. Every debt gets its minimum each month, and everything left over goes to one target debt. When the target is cleared, its minimum is not spent elsewhere; it joins the extra and moves on to the next target. The two methods differ only in the order of targets.

The default debts are a $6,000 credit card at 24.9% APR, a $1,500 store card at 18.9%, a $4,000 personal loan at 11% and an $8,000 car loan at 6.9%, with $605 of minimums and $200 extra, a budget of $805 a month. Both orders clear all $19,500 in 29 months. The snowball costs $3,715.14 of interest and the avalanche $3,204.86, so the avalanche order saves $510.29 here while finishing in the same month.

What is the debt snowball method?

The debt snowball pays the debts off from the smallest balance to the largest, whatever their rates. Its appeal is speed to the first payoff: on the default debts the $1,500 store card is gone in month 7, the personal loan in month 16, the credit card in month 26 and the car loan in month 29. Each cleared debt adds its minimum to the amount chasing the next one, so the payment on the target grows like a snowball rolling downhill.

The cost is interest. While the snowball works through the small store card and the personal loan, the 24.9% credit card is still being charged on most of its balance, and it is not cleared until month 26. The calculator fixes the snowball order at the start from the starting balances, and puts the higher APR first when two balances are equal.

What is the debt avalanche method?

The debt avalanche pays the debts off from the highest APR to the lowest. Each extra unit of money goes where it stops the most interest, so on the same budget the avalanche costs the least interest of any fixed order in most cases. On the default debts it targets the 24.9% credit card first and clears it in month 20, then the store card in month 22, the personal loan in month 26 and the car loan in month 29.

The trade-off is a longer wait for the first payoff: month 20 against month 7 for the snowball. The calculator puts the smaller balance first when two APRs are equal. Within a single US credit card that carries balances at different APRs, Regulation Z, 12 CFR 1026.53, as published by the CFPB, has the issuer apply anything paid above the minimum to the highest-rate balance first, with some exceptions such as deferred-interest balances near the end of their promotion; that is an avalanche inside one card.

Debt snowball vs avalanche: which costs less?

For the same budget, the avalanche usually costs less interest, but the size of the gap does not simply rise with the extra amount: on the default debts it is $10.73 with no extra, $510.29 with $200 and $387.00 with $500, because a larger budget clears every debt sooner whichever order is used. The snowball tends to give an earlier first payoff. These results come from the default four debts:

With no extra, the two plans differ by only $10.73, because the minimums alone carry most of the work and there is little spare money to direct. When ranking the debts by balance, smallest first, gives the same order as ranking them by APR, highest first, both orders are the same plan and cost the same. The calculator shows both so you can weigh an early win against the interest; neither order is right for everyone.

How much do freed-up minimums and an extra payment help?

Rolling a cleared debt's minimum into the next one is what makes either method faster than paying each debt on its own. On the default debts:

• Minimums only, no rollover: each debt is paid only its own minimum, the last one clears after 58 months, and interest totals $6,543.45.
• Minimums with rollover, no extra: the same $605 a month, but freed minimums move on; debt-free in 43 months with $5,982.35 to $5,993.08 of interest, depending on the order.
• Rollover plus $200 extra: debt-free in 29 months, with $3,204.86 of interest under the avalanche.
• Rollover plus $500 extra: debt-free in 20 months, with $2,013.30 under the avalanche.

The first $200 of extra money takes 14 months off the plan; the next $300 takes 9 more. Each extra unit shortens the plan by less than the one before, because the plan gets shorter and has fewer months left to save. Change the extra amount and watch the debt-free month and the chart move.

A worked example in pounds

Currency changes only the formatting; the arithmetic is identical and nothing is converted. Three UK-style debts with rates chosen for illustration, and £150 extra a month on top of £260 of minimums, a budget of £410:

The snowball is debt-free in 27 months with £2,481.68 of interest; the avalanche in 26 months with £2,005.12, saving £476.56 and a month. Here the highest-rate card is also the largest balance, so the snowball leaves it until last. Type your own debts into the rows in any of the 24 currencies; row amounts are taken as typed.

What if the minimums cannot cover the interest?

A plan only works when the monthly budget is larger than the interest being added. On the default debts, month 1 interest across all four comes to $230.79, well under the $805 budget. If the budget does not exceed the month's interest, the total balance never comes down, and the calculator says so calmly in place of a debt-free date, with the extra amount that would start bringing the total down.

A single debt whose minimum is below its own interest can also grow while the budget is busy elsewhere. Both plans still reach it in time if the budget is large enough, but the total interest rises. The calculator stops counting at 100 years and reports any debt it has not cleared by then.

How do you set up a debt snowball in a spreadsheet?

A spreadsheet can reproduce either plan with one row per month and one group of columns per debt. For each debt and month:

1. Interest = opening balance x APR / 12.
2. Minimum paid = the smaller of the minimum and the opening balance plus interest.
3. Spare budget = the fixed monthly budget minus all the minimums paid that month.
4. Extra paid = the spare budget for the first open debt in your order, then whatever is left for the next one.
5. Closing balance = opening balance + interest - minimum paid - extra paid.

Sort the debts by balance for the snowball or by APR for the avalanche, and copy the rows down until every balance is zero. The calculator above runs the same steps for both orders at once and shows the month-by-month totals in the chart's table view.

Common mistakes and what this calculator leaves out

• Letting the budget shrink. Both methods depend on keeping the same total payment after a debt is cleared; spending the freed minimum undoes the rollover.
• Adding new debt. New card spending resets the plan; the figures here assume none.
• Using the wrong rate. Promotional rates end, and the rate after the promotion is the one that drives the order.
• Missing a minimum to fund the target. Every debt still needs its minimum each month.

The calculator charges each debt interest monthly at APR / 12 and assumes fixed rates, fixed minimums, no fees and payments at the end of each month. A card minimum set as a percentage of the balance falls as the balance falls; here each minimum is held at the amount you enter, so the budget stays fixed. It does not model balance transfers, consolidation loans, penalty rates or tax effects, and it handles up to eight debts.

Glossary

Debt snowball: paying extra on the smallest balance first. Debt avalanche: paying extra on the highest APR first. Minimum payment: the least a lender accepts each month. Rollover: moving a cleared debt's minimum on to the next target so the total payment stays the same. Monthly budget: all the minimums plus the extra amount. Debt-free month: the month the last balance reaches zero. APR: the annual percentage rate; the monthly rate here is APR / 12.

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