Snowball or avalanche — which way to clear multiple debts
One method is mathematically optimal. The other is finished more often. The right choice depends on which failure you are more likely to have.
If you hold several debts at once, the payment order changes both the cost and the odds you finish. Two methods dominate, and they optimise for different things.
Avalanche: highest rate first
Pay minimums on everything, then throw every spare rupee at the highest interest rate. When it clears, move to the next highest.
This is mathematically optimal. No other order pays less interest or clears faster. It is arithmetic, not preference.
Snowball: smallest balance first
Pay minimums on everything, then attack the smallest balance regardless of rate. When it clears, roll that payment into the next smallest.
This costs more. It also gets finished more often, because closing an account entirely is a visible win, and the freed-up minimum payment makes the next one fall faster.
What the difference actually costs
Say you hold: ₹40,000 on a card at 42%, ₹1,80,000 personal loan at 15%, ₹25,000 consumer durable EMI at 20%. You have ₹20,000 a month beyond the minimums.
| Method | Order | Extra interest paid |
|---|---|---|
| Avalanche | Card, durable, personal loan | Baseline |
| Snowball | Durable, card, personal loan | About ₹4,000 more |
Four thousand rupees to finish four months sooner in psychological terms. Whether that is a good trade depends entirely on you.
The step everyone skips
Before choosing an order, list every debt with four columns: balance, interest rate, minimum payment, and the actual annual cost of carrying it. Most people have never seen their debts on one page. The list itself tends to change behaviour more than the method does.
The card balance that felt small usually turns out to be the most expensive line by a wide margin.
Two things that beat both methods
Rate reduction. A balance transfer, an EMI conversion, or a personal loan at 14% replacing a card at 42% saves more than any repayment ordering. Do this first, then order what remains.
Stopping the inflow. Neither method works while new debt is being added. This sounds obvious and is the reason most repayment plans fail.
Model a payoff
Where these figures come from
- Reserve Bank of India — Policy rates, lending and deposit regulation, credit card rules
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.