Finance
Debt Payoff Calculator
Compare Snowball (lowest balance first) and Avalanche (highest interest first) payoff strategies to eliminate debt.
Inputs
Debt Item 1
Debt Item 2
Debt Item 3
Results
Avalanche Method
Snowball Method
Time to Debt-Free (Months)
0
Total Interest Paid
$0.00
Total Amount Paid
$0.00
Other Strategy Interest
$0.00
How It Works
The debt payoff calculator simulates two popular strategies to eliminate multiple debts. The **Avalanche method** sorts debts by interest rate and directs all extra payments to the highest-interest account first, mathematically minimizing total interest costs. The **Snowball method** sorts debts by outstanding balance, focusing extra payments on the smallest debt first. This method prioritizes quick psychological wins as accounts are closed rapidly, though it may result in higher overall interest expenses if small debts have low interest rates.
Formula Used
Monthly Interest Accrual = Account Balance × (Annual Interest Rate / 12)
Interest accumulates monthly on the outstanding balance of each debt. Minimum payments are applied to all accounts first, and then any extra budget is directed to a specific debt chosen by the strategy (lowest balance for Snowball or highest rate for Avalanche) to accelerate payoff.
Worked Example
Here is a step-by-step example of how these values are calculated:
Debt 1
Credit Card ($5,000 @ 18%, $150 min)
Debt 2
Student Loan ($15,000 @ 5%, $200 min)
Debt 3
Car Loan ($8,000 @ 6%, $250 min)
Extra Budget
$300/mo
Result: Avalanche Method: Paid off in 33 months, costing $5,049.20 total interest. Snowball Method: Paid off in 34 months, costing $5,321.40 total interest. Avalanche saves $272.20 and 1 month.
Frequently Asked Questions
What is the primary benefit of the Snowball method?
The Snowball method focuses on behavior rather than math. By completely paying off small accounts quickly, you receive psychological momentum and simplify your monthly budgeting tasks by eliminating bills.
How does the Avalanche method save money?
The Avalanche method is mathematically optimal. By prioritizing the debt that costs you the most per dollar borrowed (highest interest rate), you slow down aggregate interest accumulation, resulting in the lowest possible overall payout.