Which Debt Should You Pay First? Compare Two Simple Orders
Deciding which debt to pay off first starts with a complete list of balances, rates and required payments. Compare two repayment orders using the same monthly budget.
Create one complete debt list
Record each balance, interest rate, required payment and due date. Check whether rates can change and whether early repayment creates a charge. Before comparing strategies, account for all required payments. Prioritising an extra payment is different from choosing which bills to ignore.
Compare the two ordering rules
The avalanche approach directs extra repayment toward the highest-rate debt while maintaining required payments elsewhere. The snowball approach directs extra repayment toward the smallest balance. One emphasises reducing interest cost under standard assumptions; the other emphasises clearing individual balances sooner.
Use the same numbers for both
Suppose debt A is 20,000 at 12% annually, debt B is 60,000 at 24%, and debt C is 100,000 at 18%. The snowball order is A, B, C. The avalanche order is B, C, A. These rankings alone do not give a payoff date: required payments, compounding rules and the amount available for extra payments also matter.
Hold the repayment budget constant
A fair comparison uses the same total monthly repayment budget and assumes no new borrowing. After one debt is cleared, redirect its payment to the next debt rather than silently reducing the overall budget. Compare both total interest and the time until each account is cleared. Include early repayment charges if they apply.
Account for circumstances outside the model
Overdue essential obligations, secured debts and legal consequences can require different priorities from a simple interest ranking. A mathematical ordering is not a substitute for advice about those circumstances. Choose a sustainable plan, keep a record of progress and update the calculation when balances or rates change.
Further reading: Consumer Financial Protection Bureau. Rules and products vary by country.