According to a new study by the Century Foundation, nearly 111 million Americans are unable to pay their credit card bills each month. That’s half of all Americans who have a credit card, and 40% of all adults!
Credit card debt can be more challenging to manage because it often carries high interest rates and is often used for consumer spending rather than asset appreciation (unlike a mortgage). As of January 2025, Americans have paid $240.7 billion (with a “b”) in credit card interest payments. And credit card interest rates remain high.
Austin Kilgore, analyst for the Achieve Center for Consumer Insights at Achieve, says, “There is no one-size-fits-all credit answer.
It’s no wonder so many Americans feel like they’re drowning in debt without a lifeline. There are two popular debt retirement strategies, however, that have worked for people and are worth considering when you’re ready to step down from business and face your debt: the snowball and avalanche methods.
Michael McAuliffe, CEO and president of Family Credit Management, says, “Getting out of debt isn’t just about math, it’s about motivation and discipline. Like any big goal in life, people need encouragement along the way.”
If you are not mentally prepared to deal with your debts, you will not be successful no matter what method you use. The thing that will make you successful is knowing what motivates you.
For some people, knowing how much money they can save in the long run by reducing high-interest debt lights a fire in their souls. This is where the Avalanche method comes into play.
With the avalanche method you pay off your high interest rate debt first. Credit cards are often in this category, although payday loans, car title loans and high-interest installment loans also come with punishingly high interest rates.
The snowball method, on the other hand, uses the power of quick wins to keep going, even if the going gets tough. If you have several small accounts – such as two, three or five store credit cards – you get a mental boost by paying them off and removing them from your list.
The debt avalanche method is a payment strategy where you make smaller payments on your accounts while putting more money into a balance with a higher interest rate. Once that high-cost debt is paid off in full, you put those payments toward the highest-interest debt until the entire balance is paid off.
The idea behind the avalanche method is the savings you get by not paying interest at the highest rate.
For example, imagine you have three debts with three different interest rates: a credit card for $5,000 at 22%, a personal loan for $5,000 at 12%, and a car loan for $20,000 at 6.5%.
Your annual interest on all three debts totals $3,000, which includes $1,100 on the credit card ($5,000 at 22%), $600 on the personal loan ($5,000 at 12%), and $1,300 on the car loan ($20,000 at 6.5%).
By paying $200 a month on each loan ($150 minimum plus $50 extra), you can settle these three straight debts in approximately 145 months, based on this theoretical example, paying a combined total of $11,416.25 in accrued interest.
| Type of Debt | Principal | Interest Rate | Monthly payment | Payment months | Total Interest Paid | Total Amount Paid |
|---|---|---|---|---|---|---|
| Credit card | $5,000 | 22.0% | $200 | 34 | $1,749.88 | $6,749.88 |
| Personal Loan | $5,000 | 12.0% | $200 | 29 | $782.44 | $5,782.44 |
| Car Loan | $20,000 | 6.5% | $200 | 145 | $8,883.93 | $28,883.93 |
But using the Avalanche method, you can make smaller payments on your other debts while dedicating more money to the highest interest rate loan – the credit card.
By effectively shifting your fixed monthly budget of $600 and allocating $300 to a credit card, $150 to a personal loan, and $150 to a car loan, the average interest rate on all of these accounts would drop from $11,416.25 down to $6,579.53, and the projected timeline would drop from 615 months.
Once the credit card is paid off, you roll the $300 credit card payment into a $150 personal loan payment while still paying $150 a month on the car loan. Not only do you pay less interest using this method, but you also pay off the loan faster.
| Metric | Flat Strategy ($200 Each) | Avalanche Strategy (Rollover) | Total Savings |
|---|---|---|---|
| Total Interest Paid | $11,416.25 | $6,579.53 | $4,836.72 |
| A timeline | 145 months | 61 months | 84 months (7 years) |
The downside to this method is the financial direction you need. In the example just given, you will still have to work hard to pay off all three of your debts for at least eighteen months.
If you start charging your purchases to your credit card and because your budget is out of pocket, you’ll find yourself deep in debt again.
The Snowball method prioritizes paying off your smallest debt balances first while keeping smaller payments on the others. Once a small loan is paid in full, you roll over its monthly payment amount to target the next small balance, creating momentum like a rolling snowball.
This works especially well if you have a few small debts that you want to retire to settle in order to deal with larger debts.
Let’s say you have a credit card with $1,000 on it at 22%, one store credit card with $100 on it at 30%, a personal loan for $750 at 12% and a car loan for $20,000 at 6%, and you have $400 each month in total debt.
In the snowball method, interest rates are not as important as loan size. You start with a store credit card because it has the smallest balance – $100 – and work to pay it off while continuing to make smaller payments on other debts.
After the store credit card is paid off, allocate those extra funds that you used to paying down the loan, which is the next smallest debt, and continue making smaller payments on your credit card and car loan.
In the first month, you’ve cleared a quarter of your bills, and in just three more months you’ve paid off the rest. Although your car payment is your biggest liability, once you’ve paid off all of your other debts, you can focus on paying off that car early, or put some money into a savings or investment account.
For these particular small balances, mathematically choosing the avalanche method will only save you $40 in interest. Because the financial savings are minimal in this situation, the huge psychological benefit of quick wins and “getting the ball rolling” makes the snowball method the clear winner here.
There are other ways to deal with your financial debts. Debt consolidation involves taking out a single personal loan from the bank to settle high-interest credit card balances and small debts together.
According to Kilgore, “If you have credit card and other high-interest debt, a personal loan may offer a lower interest rate, depending on your qualifications. If you can secure a much lower rate than the rates on your existing debt, you can use payday loans to pay off those balances and put more high-interest payments into one low-interest loan payment.”
Achieve also offers home equity loans and home equity lines of credit (HELOCs) to help borrowers finance loan consolidation.
Under the right circumstances, a balance transfer card is useful if most of your high-interest debt is on credit cards. By transferring your high-interest debt to one of these cards, you can temporarily stop interest accrual on the transferred balance, allowing your extra payment to be eliminated directly from the principal.
However, this strategy has its drawbacks. Ashley Morgan, a bankruptcy and tax attorney in Northern Virginia, warns, “people often underestimate the balance transfer fees, the risk of deferred interest, and how aggressively they need to pay off the balance before the promotional period expires.”
The key is to keep your eyes on the prize. Not only being free from high-interest debt but being able to put money into savings can help reduce financial stress and help you work towards long-term financial stability. Sometimes getting yourself in the right frame of mind is hard – but it’s so worth it.
FAQ
Which is better, a debt snowball or a debt advance?
Statistically, the debt avalanche approach is always better because it targets the highest interest rates first, saving you more money in interest and helping you get out of debt faster. However, psychologically, research shows the debt snowball method is often more effective for everyday consumers. The mental boost of completely clearing small balances quickly provides the motivation needed to stay on track and not give up.
Does Dave Ramsey recommend the debt snowball?
Yes, the debt snowball is a mainstay of Dave Ramsey’s financial philosophy and is officially known as “Baby Step 2” in his 7 Baby Steps program. A more psychological approach, it prioritizes behavioral change and motivation over pure statistical savings.
Should you pay off your mortgage before you retire?
Deciding whether to pay off your loan before retirement depends on your specific financial goals, liquidity needs, and interest rates. Although entering retirement without a mortgage lowers your basic costs, it can deplete savings that could yield higher returns.
