- What is the debt snowball method?
- Pay off debts from smallest balance to largest. You make minimum payments on all debts and put extra money toward the smallest. When it's paid off, roll that payment into the next. Quick wins maintain motivation.
- What is the debt avalanche method?
- Pay off debts from highest interest rate to lowest. Minimums on all debts, extra money to the highest rate. This minimizes total interest paid and is mathematically optimal.
- Which is better: snowball or avalanche?
- Avalanche saves more money. Snowball has higher completion rates due to motivational quick wins. Choose avalanche if disciplined, snowball if you need momentum.
- How long will it take to pay off my debt?
- Use the calculator with your specific numbers. As a guide, $20,000 at 20% APR with $500/month takes about 62 months. Adding $200 extra cuts it to ~38 months.
- How much interest will I save with avalanche?
- Typically $1,000-$3,000 on $20K-$50K of debt with diverse interest rates. If rates are similar, the difference is small.
- What is the fastest way to pay off debt?
- Maximize extra payments using the avalanche method. Also: increase income, sell unused items, use windfalls as lump sums, temporarily reduce expenses.
- How do extra payments reduce interest?
- Extra payments go to principal, reducing the balance that generates interest. On $10,000 at 20% APR, $100 extra/month saves ~$4,200 in interest.
- What happens if I only make minimum payments?
- A $5,000 card at 20% APR with $100 minimums takes 9+ years and costs $4,300 in interest — nearly doubling the original debt.
- Is it better to pay off debt or save?
- Pay off high-interest debt first (above 6-7%). The guaranteed return from eliminating 20% debt beats typical 7-10% investment returns. Keep a $1,000-$2,000 emergency fund.
- How does payment rollover work?
- When a debt is paid off, its minimum payment rolls into the next priority debt. This creates an accelerating cascade — payments grow larger as debts are eliminated.
- Does paying off debt improve credit score?
- Yes. It reduces credit utilization ratio (30% of FICO score). Dropping from 70% to below 30% utilization can improve your score by 50-100+ points.
- Should I pay smallest debt first or highest interest?
- Harvard research found snowball users (smallest first) were more likely to become debt-free. But avalanche (highest interest) saves more money. Choose based on your personality.
