Step 1: list every debt
For each debt, write the balance, the interest rate and the minimum repayment. Include credit cards, personal and car loans, buy now pay later and any tax debts.
Step 2: choose a method
- Avalanche: pay minimums on everything, then put every spare dollar on the highest interest rate first. This usually costs the least interest.
- Snowball: put spare dollars on the smallest balance first. You may pay a little more interest, but quick wins help many people stick with it.
When one debt is gone, roll its repayment onto the next. That growing payment is what speeds things up.
Example (illustration only): a $6,000 credit card at 19.99%, a $12,000 personal loan at 11.5% and an $8,000 car loan at 8%, with $900 a month in total. Both methods finish in about 34 months, but avalanche costs about $3,952 in interest and snowball about $4,433, under these assumptions.
Try it: debt payoff calculator
Enter up to three debts and the total you can repay each month. Estimates only; assumes interest is charged monthly and rates stay the same.
Debt free in about 34 months (2.8 years). Total interest about $3,952.
Step 3: stop the debt growing back
- Build a small emergency buffer so a car repair does not go on the card.
- Lower credit limits once cards are paid off.
- Be careful with debt consolidation loans: a lower rate only helps if the term and fees don’t eat the saving.
Free help
If repayments are already hard to meet, call the National Debt Helpline on 1800 007 007. It is free, independent and confidential. Be wary of companies that charge to “fix” debt or credit reports.
Want this applied to your situation? Book a no-obligation chat with our team on Edward Street.
Quick answers
Which is better, avalanche or snowball?
Avalanche usually costs less interest. Snowball can be easier to stick with. The one that suits you is the one you keep doing.
Where can I get free help with debt?
The National Debt Helpline (1800 007 007) offers free, independent financial counselling.
Sources
General advice warning. This article is general information only and does not take into account your objectives, financial situation or needs. Rules and thresholds change; check the sources above. Past performance is not a reliable indicator of future performance. Consider the relevant PDS and our Financial Services Guide and seek personal advice before acting. FinForce is authorised under Financial Force Pty Ltd AFSL 238337. Shay has been authorised since 18 October 2011.