How to Get Out of Debt

Jan 24, 2023 | Managing Debt, Personal Finance Podcast | 2 comments

should I use the debt snowball or the debt avalanche to get out of debt?

Years ago, the best (and only) advice I received for paying off debt, was to pay more than my minimum payments. That was it. No additional details.

Despite limited information, I took the advice. Every month I would put an extra $100 toward my payments. But that was it, no real strategy. Over time I started to feel like it didn’t make a difference. There was no noticeable progress so I just didn’t see the point. Young, and admittedly dumb, I gave up.

Eventually, I stopped putting the extra money toward student loans. Making money decisions based on emotion alone, it seemed more useful in my pocket. I decided to focus only on saving money instead of getting out of debt and working toward Financial Freedom.

If only I could go back and tell myself what I know now. That if you have loans, credit cards, etc. there is a right way and a wrong way to pay it off. Not only that, but you can do it faster than you think. It’s all about finding the strategy that will work best for you.

If you’re ready to commit to Financial Freedom, there are two simple and effective methods: The Avalanche and The Snowball. We discuss the pros and cons of both methods in this episode of the radmoney podcast, to help you decide which approach you want to take.

But we would be remiss if we didn’t also look at Debt Consolidation.

Consolidating your Debt

Debt consolidation is a popular, sometimes effective, method to manage debt. Commonly used to consolidate small loans and credit cards into one monthly expense, ideally at a lower interest rate. But did you know that most people who use this approach take longer to pay it off, if ever? Oftentimes consolidators even increase their debt because they forget to do two things:

  1. Make a plan that goes beyond consolidation
  2. Change their relationship and habits with money!

To reap the benefits of loan consolidation – you need to know what comes next in your plan. Otherwise, you’re just moving money around, telling yourself you’re solving a problem when you’re not.

Without changing your financial habits and behaviors, you may find yourself like so many others – stuck in more debt than when you started. 

Why we like it

Consolidating your debt can absolutely be helpful for reducing your monthly expenses and the cost of interest. However, without a solid plan and consistent follow through, studies show that consolidating may even cost more than if you did nothing.

The Downside

Consolidating debt is an *optional* first step toward Financial Freedom. For many it is an unnecessary and pricey step that you should skip entirely!

But if you’re considering consolidating your debt, you need to run the numbers! You may find out that you could be out of debt just as soon as using a classic Snowball or Avalanche approach to paying off your debts. Neither of which have extra fees or additional administrative work on your part. So while we are fans of consolidating debt, whether it’s right for you specifically will depend on your personal situation

But no matter who you are, on it’s own, consolidating debt is not a complete plan or solution to your problem.

The Debt Snowball and Avalanche

First, it is important to note that both tactics work similarly. Each approach suggests focusing all financial efforts towards paying off one debt at a time, only paying minimums on other debts. This is crucial to your success and consistent progress toward your goal. The advice to simply pay a little more than the minimum on all of your debts at the same time does not work.

The only difference between the two approaches is in how you prioritize and choose which debt to start with…

The Avalanche

If you’re an analytical, number cruncher type, The Debt Avalanche might be for you. This is mathematically the best way to get out of debt with the goal of paying the least amount of interest in the process.

How the Avalanche works:

  1. List all your debts in order from highest interest rate to the lowest interest rate.
  2. Continue to pay minimums on all debts.
  3. Put as much extra money from your budget as possible, toward your highest interest loan.
  4. Once that loan is paid off, use all the money you were paying on the first debt and put it toward the next debt on your list.
  5. Repeat Step 4 until you’re debt-free!

Why we like it

Debts with high-interest rates can end up costing more money in the long run. For instance, if you have a few loans you need to pay off that are $2,000 each, you’re going to pay more on a loan with a 25% interest rate than a loan with a 4% interest rate. For that reason hitting the debts with the highest interest rate first saves you the most money.

The Downside

The downside to the Debt Avalanche is that it can be tough to stay motivated. If the highest interest rates are on the largest loans it may take a while to pay any single balance in full. Due to this fact, many people lose motivation with this approach and find it difficult to stick to the Debt Avalanche.

The Snowball

The Debt Snowball is all about playing into the human brains love for “small wins” that keep you motivated and consistent. Envision a snowball rolling down a hill. At first the snowball is tiny but as it continues down the hill it picks up snow and speed.

How the Snowball works:

  1. List all your debts in order from the lowest balance to the highest.
  2. Continue to pay minimums on all debts.
  3. Put as much extra money from your budget as possible, toward your highest balance loan.
  4. Once that loan is paid off, use all the money you were paying on the first debt and put it toward the next debt on your list.
  5. Repeat Step 4 until you’re debt-free

So let’s say you have three debts: $250 – $1,000, and $10,000. You pay off the $250 debt quickly, and that’s exciting so you move on to the next debt and now have more money to put towards it.

Why we like it

The reason why the snowball is so popular is the effect seeing progress has on your mindset. Getting a win early on simply gives you proof that it is possible and helps you get motivated to do it again for the next debt and the debt after that and so on.

The Downside

The downside to the snowball is that you will pay more in interest than with the avalanche, but depending on how intensely you go after your debt, it might not be by much. Regardless, you will get out of debt faster and pay less interest using the debt snowball than if you continued to just “pay more than the minimum”.

Which method is best for you?

When it comes to picking a method it’s important to know yourself. For someone who is disciplined and loves math the Debt Avalanche can work. But it is more difficult to stay motivated if your highest interest rate is also your highest balance.

Because of the effect the Debt Snowball has on your mindset, we recommend most people use this method. It is amazingly motivating to see your smaller debts go away quickly. Believe it or not, that little bit of progress results in a higher likelihood of following through and reaching Financial Freedom.

Whatever method you choose, make a contract with yourself to stay focused and you will get out of debt. Consider starting a money journal practice as well. Learn about Journaling an Abundance Mindset here.

*A quick note about paying more than your minimums.

Whatever approach you take, when making additional payments be sure to indicate that the additional amount above the minimum is to go towards the principle, not a future payment.

Are you interested to see how long it takes to get out of debt using both methods? Here is a link to a great tool >> Debt Calculator.


  1. Mariela

    What about consolidating debt and make just one payment ?

    • Rebecca

      Excellent question Mariela! While consolidating debt can be helpful studies have shown that a lot of people who take this route end up actually paying more overall. This is because often times there is a false perception that the debt is taken care of, spending habits and behaviors go unchanged and the while the monthly payment may be less the length of the loan is extended and ends up costing more. These and other reasons are why we view consolidation as useful but an incomplete strategy on it’s own.


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