How To Pay off Credit Card Debt: From Snowball To Avalanche

The Harvard Business Review has published a story on “the best strategy for paying off credit card debt.” The research, originally published in the Journal of Consumer Research by Keri L. Kettle et. al. benefits the millions of Americans who are literally $1.13 trillion in collective credit card debt according to the Federal Reserve Bank of New York. Those trapped in the cycle of debt could truly benefit from a solution, so it’s worthwhile research.

The researchers (hereafter Kettle & Co.) tested a couple different methods for credit card debt reduction:

Dispersing payments equally across multiple credit cards each month.
Concentrating as high a payment as possible on one account at a time.

Their results were definitive and monumental! Truly a groundbreaking study! At last we know the one true way and light of how to pay off credit card debt!

I jest, of course. Because—say it with me now!—personal finance is personal. If there were one singular, perfect solution to credit card debt, everyone would use it and it wouldn’t be the question that launched a thousand personal finance influencers.

Today I want to break down a few of the different methods that work for paying down credit card debt. I’ll cover Kettle & Co.’s findings, some conventional wisdom from those who have survived debt, and one of the most hated, obnoxious, and ethically questionable men in personal finance media.

For verily, I say unto thee: Even a broken clock is right twice each day.
-The Book of the Bitches, Chapter III, verses 5-6

One debt at a time

According to the HBR, the study’s results showed that “people are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest” (we’ll come back to that last bit). In other words, if you have a balance on multiple credit cards, you need to throw all your efforts behind paying off just one.

In other words, don’t try to split up extra payments between all your debts. Just pay the minimum required monthly payment on every other card, while pouring every extra dollar you can into just one. Once that debt is paid off, you can tackle the others.

You’ll be more likely to follow through until all your debt is gone if you use this strategy. That early sense of accomplishment you get from paying off one debt first will make you feel capable of decimating even the largest debt. Succeeding at paying down debt, in other words, is all in your head (at least according to Kettle & Co., and they’ve all got multiple letters after their names so that means they’re smart).

A debtor’s sense of progress, according to the study, is based on their perception. They measure their personal success not by the size of the repayment nor how little money is left on a debt. Rather, by “what portion of the balance they succeed in paying off.” And let’s face it: it’s a lot easier to pay off half of a $1,000 debt than half of a $10,000 debt.

Is this really the best method?

All that said, I think the HBR headline is a bit misleading. What the Kettle & Co. study is really measuring is the method most likely to be successful, not necessarily the best method. The researchers ask, “What repayment strategy is most likely to motivate borrowers to get them out of debt?”

They’ve figured out which tactic people are sure to stick with until their debt is eliminated. And sure, that’s one way to define “best.” But it’s neither the only nor even the most obvious definition! This makes it really about what motivates borrowers to succeed, not what is most efficient and logical when it comes to paying down debt. It’s a study of people, not money.

Emotional gratification and continuous encouragement aside, what is the best method of paying down debt?

Meet the Avalanche Method

I’m not going to challenge the researchers on the one-card-at-a-time thing. I’ve tried it, and honey it fucking worked. But remember the whole “beginning with the smallest” part? That’s worth revisiting.

Let’s say you’re a self-motivated and rational human being—a veritable coldhearted logic machine. You alphabetize your spice rack. Your favorite Star Trek character is a two-way tie between Tuvok and Data.

Could I have just said Spock? Yes, of course. But that is exactly the kind of rote, expected choice a Logic Queen like you would never make. You delve deeper. You write character sheets to compare the merits of each Vulcan, their value to their crews and captains, whittling them down to their most essential traits before deciding on the most logical favorite character. Besides which, Tuvok is a vastly underrated character. — Read the alt text. I dare you.

With instincts like these, you won’t need to trick yourself into following through on debt reduction—you’ll just do it. You won’t need the early sense of victory that comes with paying down the smallest debt first. Instead, you’ll do the math and tackle the debt that will save you the most money when it’s eliminated.

This is called the Avalanche Method.

Don’t start with the smallest card balance. Start with the card that has the highest interest rate. Or, if you have multiple cards with the same high interest rate, pay whichever of the two has the largest balance first. By paying it down soonest, you’ll get the most bang for your buck. You’ll save more money in the long run by not allowing that high interest card to accrue any more evil interest.

The card with the highest interest rate might also have the lowest balance—and that’s fine! But it might also have the largest balance, or fall somewhere in the middle. Either way, your goal here should be to pay down your debt in a way that will have the biggest positive influence on your net worth. And in this case, that means paying as little interest to the credit card company as possible.

Here’s more on the Bitches vs. debt:

Meet the Snowball Method

At last we come to it: the method popularized by the Voldemort of personal finance himself, Dave Ramsey. (Yes, he’s that fuckin‘ guy.) I am of course talking about the Snowball Method.

While I doubt Ramsey came up with the tactic for paying off credit card debt (and he’s not referenced in Kettle & Co.’s study), he deserves credit for popularizing it. I will give him that, for I am as magnanimous as I am beautiful, talented, and humble.

Much like the Avalanche Method and Kettle & Co.’s findings, the Snowball Method works by focusing on one debt at a time, starting with the smallest. It’s a central tenet of Finance 101 for a reason, though. And that reason is the absolutely perfect metaphor of a snowball. I’m really burying the lead here, but in case you haven’t picked it up by now, here’s how a debt snowball works:

Every time you pay off a debt, you roll the payment for that debt over into the next debt you have to pay. As you pay off debts, the total amount you’re paying every month stays the same while the total amount going toward the account you’re currently paying off increases exponentially.

The Snowball Method works, especially for those less logical than Tuvok. It has helped millions of folks get out of debt. Just as Kettle & Co. reveal in their study, the tactic is gratifying, simple, and fast. Like playing a video game, it makes paying off debt feel like leveling up. Every time you kill a debt, you’re able to face the next one with a bigger, stronger payment that does more damage.

This is a metaphor for the size of your... credit card debt payment.

Credit card debt is debt

I’ve spent a lot of time talking specifically about credit card debt above. And to be fair, it’s one of the worst, most insidious kinds of debt. It ruins lives almost as often as medical debt.

But speaking of other kinds of debt… the above methods work for them as well! I personally used the Avalanche Method to pay off my student loans. By sticking to that plan, I paid off my loans in half the scheduled time and was able to put my interest money into something more useful—like dinosaur arms for my chickens!

Whether it’s your mortgage, student loans, a car note, medical debt, small business loan, or credit cards, the important thing is that you choose a debt pay-off strategy that works for you… and see it through to completion.

An earlier version of this article was published in January of 2017. At that time Americans’ collective credit card debt was $800 billion according to the Federal Reserve. It has since risen to $1.13 trillion.