When you’re working to pay off debt, it can be difficult to know where to start. You can use this debt payoff calculator to choose between two popular debt payoff methods: the debt snowball and debt avalanche.
How to Use This Calculator
To use the debt payoff calculator, enter each of your debts, including the remaining balance, interest rate, and minimum monthly payment. Use the button labeled “Add another loan” until you’ve added all of your current debt accounts, including credit cards, student loans, personal loans, lines of credit, and car loans.
On the calculator, you can also designate the additional monthly amount you’d like to pay towards debt. The more you can allocate toward debt each month, the more quickly you can become debt-free. By creating a monthly budget, you can determine just how much you can afford to put toward debt.
Once you’ve entered all of your information, the calculator will compare two different debt payoff methods: the debt snowball and the debt avalanche. For each strategy, the calculator will show you how much you’ll pay in total, as well as how many years and months it will take you to pay off your debt fully.
What is the Debt Snowball?
The debt snowball is a debt payoff strategy where you prioritize your smallest debts first. Each month, you make the minimum monthly payments on each of your debts, except the smallest. Any extra money you can afford to put toward debt each month should go toward your smallest debt until it’s fully paid off.
Once you’ve paid off your smallest debt, you take the money you were putting toward it and start putting it toward your next smallest debt. This creates a snowball effect where your payments on your smallest debt get larger and larger until all the money you were previously paying toward other debts is going toward your largest debt.
What is the Debt Avalanche?
Similar to the debt snowball, the debt avalanche is a debt payoff strategy where you prioritize one debt while making the minimum monthly payments on the others. But in the case of the debt avalanche, you prioritize the debt with the highest interest rate.
When you’re using the debt avalanche, pay the minimum payment on all debts except the one with the highest interest rate. On the highest-interest debt, pay the minimum payment, along with any other funds you can afford to put toward debt each month.
Once your highest-rate debt is paid off, you can avalanche the money you were putting toward it to your next highest-interest debt. Keep following this pattern until your entire monthly payment is going toward your remaining debt, the one with the lowest interest rate.
Debt Snowball vs. Debt Avalanche: Which is Right For You?
Both the debt snowball and debt avalanche are popular strategies for paying down debt, but how do you decide which is right for you?
When you use the debt payoff calculator, you can see which debt payoff method will result in you paying the lowest amount over the long run. In most cases, the debt avalanche is the quickest method and results in the least amount of interest payments. The reason is that the debt avalanche prioritizes high-interest debt first, meaning you’re paying off your most expensive debts. The snowball, on the other hand, prioritizes the smallest debts, even if they also have the lowest interest rates.
While the debt avalanche is often the most cost-effective, the debt snowball may still be worth considering. When you pay off debt using the debt snowball, you get a win each time you pay off a debt. And because you’re starting with the smallest debts, you get these wins more quickly than with the debt avalanche. These wins can provide an emotional boost and the motivation you need to continue on your debt payoff journey.
Read More: Should You Save for Retirement or Pay off Debt?
Debt Payoff Tips
Choosing the right debt payoff method is just one piece of the puzzle to becoming debt-free. Here are a few other tips to help you along your debt payoff journey:
Stop accruing new debt. When you already have debt, it’s easy to tell yourself that just one more swipe of the credit card won’t make much of a difference. But truly getting your debt under control requires changing your spending habits.
Consolidate debt to reduce your interest rate. Consolidating debt allows you to reduce your interest rate while combining multiple monthly payments into just one. You can use a personal loan to consolidate multiple credit card debts.
Consider a balance transfer. While debt consolidation can be effective, it still requires paying interest. A balance transfer, on the other hand, allows you to transfer your debt from one credit card to another and take advantage of a 0% introductory offer.
Stick to a budget. Budgeting and debt payoff go hand in hand. Not only does budgeting help you change the spending habits that may have gotten you into debt, but it also helps free up money you can put toward paying off debt each month. You can create a budget, manage your cash flow, and set a plan for debt payoff with Personal Capital’s free financial tools.
Reward yourself. Debt can affect your emotional health as well as your financial health, and the journey to debt freedom can be a long one. It’s important that as you pay off debt, you reward yourself for your progress and leave room in your budget for things you enjoy.
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Personal Capital compensates Erin Gobler (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.