Debt snowball vs avalanche: a three-debt Canadian example

Two strategies, one monthly budget

With the avalanche, you make required minimum payments on every debt and direct remaining money toward the highest annual interest rate. With the snowball, you make the same minimum payments and direct remaining money to the smallest outstanding balance. When one debt is cleared, roll the freed amount into the next priority.

FCAC describes both methods and advises keeping minimum payments current. Before choosing either one, bring any overdue accounts into good standing where possible. Late-payment penalties, collections or a missed essential expense can matter more than a small theoretical interest saving.

Worked example: C$730 a month across three debts

Use these illustrative fixed-rate balances: Debt A C$1,500 at 12% APR with C$50 minimum; Debt B C$5,000 at 20% APR with C$140 minimum; and Debt C C$12,000 at 7% APR with C$240 minimum. Combined minimums are C$430/month; add C$300 extra for a C$730 fixed total budget. All three debts start current, with no fees or additional charges.

In Money Figures’ monthly-interest simulation, the snowball pays Debt A first and produces approximately C$2,213.72 in interest over 29 months. The avalanche pays Debt B first and produces approximately C$2,102.05 in interest over 29 months. The avalanche saves approximately C$111.68 in modelled interest while reaching the final payoff in the same month.

The model applies each monthly APR/12 interest charge before that month’s payments, then allocates minimums and the remaining budget. Actual cards may accrue interest daily, use different minimum formulas, assess fees or apply payments to rate buckets differently. This example is not a prediction of a creditor statement.

What the interest total cannot measure

Snowball’s early small-balance payoff may help a person stay motivated. Avalanche emphasizes minimizing interest given the same fixed rates and payment discipline. Neither method works if the payment budget is routinely unaffordable. If the C$730 example leaves too little for housing, food and utilities, a lower sustainable budget is a more useful starting point.

Promotional credit-card rates, variable rates, penalty rates or consolidation fees can reverse or change the comparison. Do not move money into a new credit facility on the strength of a simplified model alone. If you cannot meet minimums, contact lenders or an accredited non-profit credit counsellor to discuss options before arrears become unmanageable.

Run your own comparison without hiding assumptions

Open the three-debt comparison, enter each balance, APR and minimum payment, and keep the extra payment fixed while comparing strategies. The displayed total budget equals the entered minimums plus your extra payment. Saved and shared scenarios contain your entered assumptions, so avoid sharing actual identifiable debt information publicly.

If you have only one credit card, the fixed-payment credit-card calculator may be clearer. In either case, confirm the statement APR, compounding, current balance, contractual minimum payments and any overdue amounts before acting.