Debt Repayment Strategy: Avalanche vs Snowball

The Debt Problem

Consumer debt — credit cards, personal loans, buy-now-pay-later balances — carries interest rates that range from uncomfortable (15% p.a.) to devastating (26% p.a.). Every month you carry a balance, that interest is working against you.

The solution isn't complicated: pay minimums on everything, then throw every spare dollar at one debt until it's gone, then attack the next. The question is which debt to attack first.

Method 1: The Avalanche

Target the debt with the highest interest rate first. Mathematically, this minimises total interest paid.

Example:

• Credit card A: S$3,000 balance at 26% p.a.
• Personal loan: S$8,000 balance at 12% p.a.
• Credit card B: S$1,500 balance at 24% p.a.

Avalanche order: A → B → loan.

Best for: People motivated by numbers and long-term optimisation.

Method 2: The Snowball

Target the smallest balance first, regardless of interest rate. Once it's gone, roll that payment into the next smallest balance.

Using the same example: B (S$1,500) → A (S$3,000) → loan (S$8,000).

Best for: People who need motivational wins to stay on track. The psychological benefit of eliminating a debt entirely can outweigh the mathematical cost of extra interest.

Which Should You Choose?

The Snowball's quick wins may help some people stay motivated, while the Avalanche minimises interest when payments and other terms are equal.

A hybrid also works: use the Snowball to clear one or two small debts first (to reduce complexity), then switch to the Avalanche for the remainder.

While You're Paying Down Debt

• Stop adding to balances. Freeze or cut up cards if needed.
• Pause non-essential savings goals (except your emergency fund minimum).
• Look for balance transfer offers — moving high-rate debt to 0% promotional rates can save thousands in interest during the repayment period.

Life After Debt

Once you're debt-free (excluding a mortgage), redirect every former debt payment into savings and investments. The saving goals framework helps turn that freed-up cash flow into a concrete plan.