Debt Management

Core Concepts

Debt Avalanche

Pay minimum payments on all debts, then direct all extra payment to the debt with the highest interest rate first:

• Mathematically optimal: Minimizes total interest paid over the life of all debts
• Once the highest-rate debt is paid off, the freed-up payment rolls to the next highest rate
• Requires discipline — the highest-rate debt may also be the largest balance, meaning slow visible progress initially
• Always saves money compared to snowball, though the difference varies by debt profile

Debt Snowball

Pay minimum payments on all debts, then direct all extra payment to the debt with the smallest balance first:

• Psychologically effective: Quick wins build momentum and motivation
• Research (Kellogg School) shows people are more likely to stick with snowball and actually become debt-free
• May cost more in total interest than avalanche, but adherence is higher
• Best for individuals who need motivational wins to stay committed