The two orders of clearing debts optimise different things

Same money, different sequence

A household with several debts and a fixed amount available each month faces a question that sounds trivial and is not. Every debt has to receive at least its minimum. Whatever is left over goes somewhere, and the only real decision is which debt receives it first, then second, then third.

The total sum leaving the household is identical under every ordering. What changes is how much of it ends up as interest and how long the whole exercise takes — and, separately, how likely the household is to still be doing it in eight months. Those two considerations pull in different directions often enough that the question has produced two established answers.

They are usually called the avalanche and the snowball. Both are coherent, both have serious people defending them, and the disagreement between them is more interesting than either method on its own.

The avalanche minimises what is paid to lenders

The avalanche directs every spare unit at the debt with the highest interest rate, regardless of its size, while everything else receives its minimum. When that debt is cleared, the freed-up payment moves to the next highest rate, and so on down the list.

The reason this is arithmetically optimal is direct. Interest accrues per unit of balance per unit of rate, so a payment removes the most future interest when it is applied where the rate is highest. No other ordering can beat it on total interest paid, and that is not a matter of opinion — it falls out of the way the charge is calculated.

It is also generally fastest to complete overall, because less of each payment is being consumed by interest along the way. If the only objective were the total amount handed over, the discussion would end here.

The snowball buys completed accounts

The snowball orders by balance instead, smallest first, ignoring the rate. Its defenders are not confused about the arithmetic; they accept that it usually costs more in interest and argue that a repayment plan which is actually finished beats a cheaper one that is abandoned.

The mechanism it exploits is real and has a name in the wider literature on motivation: visible completion sustains effort in a way that gradual progress towards a distant goal does not. A debt that disappears entirely in two months produces one fewer statement, one fewer payment to manage, and clear evidence that the plan works. That evidence matters most in the early weeks, which is when plans are most likely to be dropped.

There is a mechanical benefit too, independent of morale. Each cleared account frees its minimum payment permanently, which raises the amount available for everything remaining. That effect is the same under both methods, but the snowball produces it sooner.

How much the choice actually costs

The honest answer is that it depends entirely on the spread between the rates and the spread between the balances, and that the difference is often smaller than the argument surrounding it. When several debts carry similar rates, the orderings produce nearly identical totals and the choice is essentially free.

The gap widens sharply when one debt is much more expensive than the others and also happens to be one of the larger ones. In that situation the snowball can leave the most expensive balance accruing for a long time, and the cost of the ordering becomes substantial rather than academic.

A quick way to find out is to list the debts twice, once by rate and once by balance. If the two lists are broadly in the same order, the debate does not apply to you. If the expensive debt sits near the bottom of the balance-ordered list, the arithmetic is worth taking seriously.

What outranks both orderings

Several things sit above this decision and should be settled first. Never missing a minimum matters more than any ordering, because fees and the consequences of arrears are usually worse than a suboptimal sequence. A promotional rate about to expire creates a deadline that overrides both methods, since the debt is about to become a different debt.

Priority obligations are a separate category again. Where non-payment can cost a household its home or its ability to work, the consequence is not measured in interest and does not belong on a list sorted by rate. Those come first regardless of what any method suggests.

In practice many households use a hybrid: clear one or two very small balances quickly for the simplification and the evidence of progress, then switch to strict rate order for the rest. Whether that suits a particular situation depends on the debts, the income and the person, which is why a free debt advice service or a regulated adviser is the right place to settle it.