Snowball vs avalanche - What loan do I pay first?

Avalance method - Cost effective

With the avalanche method you pay the loan with the highest interest first. This ensures that you pay as little interest as possible.

• Cheapest

  Because you pay the most expensive loan first. Unless you can't serve all your loans and recieve additional fees

• Fastest

  The avalance method is the fastest method to zero debt

• Requires more discipline

  Because it can take a longer time to pay back your first loan

• Can lead to more defaults

  If you can't serve the minimum pay of all debt at the same time

Snowball method - The motivational strategy

With the snowball method, you start with the smallest loan first. When this is fully paid, you continue with the second smallest loan, and so on. This creates a "snowball-effect", where you can quickly eliminate loans.

• You terminate loans faster

  Will lower your chance for extra fees and defaults

• Better motivation

  Because of quick small victories

• Can be more expensive

  If you delay loans with higher interest

Combination

The best strategy is usually a combination of the avalanche- and snowball methods. You should make a strategy tailored your own debt.

Remember: It is not unusual for the smallest loan to have the highest interest rate.

What method should you pick?

• Pick a combination

  If you can make a plan on your own. Otherwise you should always consult an economic advisor.

• Pick the avalanche method

  If you want to pay the least amount of interests and it doesn't lead to more defaults.

• Pick the snowball method

  If you need motivation and quick wins

The most important, is that you make a strategy and stick to it. Regardless of which method you pick. The more you pay early, the faster you become debt free!