Debt avalanche vs debt snowball: What’s the smarter way to pay off loans

Learning about the two debt repayment strategies
When you're paying off multiple debts—credit cards, personal loans, and EMIs —two of the most popular strategies emerge: the debt avalanche and the debt snowball. The debt avalanche targets debts with the highest interest rates first, while the debt snowball targets the lowest balances first, interest rates notwithstanding. Both strategies are trying to pay off debt, but the strategy, psychological effect, and total cost can vary drastically based on your situation.

How the debt avalanche method works
The debt avalanche strategy is the most cost-effective mathematically. You pay the minimum on all debts and apply any additional savings to the debt with the highest interest rate. After paying off that debt, you attack the next highest rate, and so on. This strategy saves the least amount of money in total interest over time, and it is best for people who are disciplined enough to follow the strategy without requiring emotional payoffs in the short term. In India, with credit card rates of over 36% per annum, this strategy can lead to huge savings.

How the debt snowball method works
The debt snowball technique is based on motivational behavior. You prioritize the debts from lowest to highest and apply additional payments to "attack" the lowest debt first, paying the minimum on the others. After the lowest one is paid, you apply its payment to attack the next lowest debt, repeating the "snowball" process. It yields quick wins, which give a mood boost and motivation to continue. To achieve early success and thereby motivation for borrowers who are in a state of overwhelm or lack consistency, particularly in paying multiple EMIs, the snowball technique can give the push required to remain on track.

Pros and cons for Indian borrowers
For Indians with high-interest loans like credit cards, personal loans, or payday loans, the avalanche strategy will mostly result in faster payoff and lower interest paid. It does require discipline, though, since the very first debt you pay may take you longer to pay off, giving you less immediate psychological gratification. The snowball strategy allows for faster payback and may be more practical for borrowers with smaller, multiple debts or who tend to lose heart easily. Social pressures in India—pressure from family to pay off debts of a specific type first—can also influence what strategy.

Choosing the best approach for your case
The best strategy depends on your personality, self-control, and debt situation. If you prefer saving the most and can discipline yourself to stick to a plan with no immediate gratification, the debt avalanche method is the better choice. If you prefer psychological boosts from small wins and emotional momentum, the debt snowball method may be the better choice. Some lenders even employ both—starting with the snowball for motivation and then switching to the avalanche to save. Either way, commitment and consistency are the two most important factors if you must exit debt in India's fast-changing credit landscape.