D9 - To Snowball or to Avalanche, that is the Question

Struggling to chose between the Snowball and Avalanche method? This post explains the real trade-offs - and how we finally decided.

Introduction to Debt Repayment Strategies

When it comes to paying off debt, two popular methods stand out: the Snowball and Avalanche methods. In this post, we will break down these strategies in simple terms. Additionally, we will introduce our unique approach to debt repayment, which serves as a third option distinct from the other two.

Understanding the Basics

To illustrate the differences between the Snowball and Avalanche methods, let's assume we have five credit cards, each with different balances and interest rates. Here are the details:

1. Bank A – R5,000 @ 15%

2. Bank B – R10,000 @ 17%

3. Bank C – R50,000 @ 16%

4. Bank D – R30,000 @ 19%

5. Bank E – R40,000 @ 18%

   
   

Assumptions

• We will not use these credit cards for purchases; they are locked away.

• Each month, a minimum payment is required for each card, typically around 3% of the balance.

• You have extra money in your monthly budget to pay towards your credit cards beyond the minimum payments.

  
  

If you only make the minimum payment, you will spend years paying interest before your cards are paid off. For more on this, read about the "The 3% Credit Card Minimum Payment Trap."

In total, your debt amounts to R135,000. If your minimum monthly payment is 3%, that equals R4,050. If you have R7,000 available each month, you can allocate an extra R2,950 towards your debt.

Now, the question arises: should you spread that payment across all cards or focus on one specific card? If you choose one card, how do you decide which one to pay off first?

Method 1 - The Snowball Method

The Snowball Method suggests that you take the extra R2,950 and pay it towards the credit card with the lowest balance.

In our example, you would start with Bank A (R5,000 balance). Once that card is paid off, you would then direct your extra payments to Bank B (R10,000 balance).

You would continue this process with:

• Bank D – R30,000 balance

• Bank E – R40,000 balance

• Bank C – R50,000 balance

  
  

...until all your credit cards are paid off.

Why Use This Method?

The Snowball Method has a psychological advantage. By paying off smaller debts first, you gain a sense of accomplishment. This momentum can motivate you to continue eliminating your debt.

Snowball builds momentum with early successes, good for behavioral motivation.

Is This the Best Method?

While the Snowball Method can be motivating, it may not be the most efficient mathematically. There is a faster way to pay off debt while also paying less interest overall.

Method 2 – The Avalanche Method

The Avalanche Method focuses on paying off the credit card with the highest interest rate first.

In our example, you would apply the extra R2,950 to Bank D (19% interest rate). Once that card is paid off, you would move on to Bank E (18% interest rate).

You would then continue with:

• Bank B – 17%

• Bank C – 16%

• Bank A – 15%

  
  

...until all your credit cards are paid off.

Method 3 - Cashflow Reallocation Strategy

Our method differs slightly due to specific circumstances. We call it the Cashflow Reallocation Strategy. This approach is designed for those who want to pay off their debt as quickly as possible.

Choosing the Attack Card

In this strategy, we select one credit card to focus on first, known as the Attack Card. We choose the card with the highest interest rate, regardless of the balance. If two cards share the same interest rate, we select the one with the lowest balance.

Here’s a summary of how this strategy works:

• Choose the credit card with the highest interest rate as the Attack Card.

• Do not use this card for any spending.

• Continue making minimum payments on all other cards.

• Allocate any extra money in your budget to the Attack Card.

• As the balance on the Attack Card decreases, the interest charged also reduces.

• This creates a surplus, which is added to the next payment, accelerating the payoff.

  
  

How This Strategy Works in Real Life

Scenario 1: All Credit Cards Are Maxed Out

This was our starting point.

What’s Happening Mathematically

• Each month, you must pay the minimum on every card.

• On the cards you still use for normal expenses, the balance stays roughly the same.

• On the Attack Card, the balance reduces every month.

• As that balance decreases:

- The interest charged on that card drops.

- Your total monthly interest bill drops.

- This drop in interest creates extra cash flow.

- This surplus is then added to the next payment.

In simple terms:

Less interest → more surplus → bigger payments → faster payoff.

This creates a self-accelerating loop, even though most cards may remain “flat” for a while.

Risks to Be Aware Of

• Your credit utilization remains high during this phase.

• Your credit score may temporarily drop.

• Banks could reduce limits on cards that stay maxed for extended periods.

  
  

Despite these risks, we found this method effective because:

• All payments were made on time.

• Total debt was decreasing, not increasing.

• This phase is temporary, not permanent.

  
  

Once the first card is paid off, everything changes quickly.

Scenario 2: All Credit Cards Are at ±50% Utilization

In this scenario, you have available credit on all cards.

What’s Happening Mathematically

Here, you can take a more aggressive approach:

• Use available credit on low-interest cards to pay down or fully pay off the highest-interest card.

• This effectively moves debt from high-interest to low-interest.

  
  

For example, if you move R10,000 from a 15% card to a 19% card, you immediately save on the interest difference. Your total debt remains the same, but your monthly interest drops permanently.

Why This Can Work Very Well

• Total interest reduces faster.

• The Attack Card can be cleared much sooner.

• Momentum builds quickly.

• Once a high-interest card is paid off, it is locked away.

  
  

Risks to Be Aware Of

• One or two low-interest cards may become highly utilized.

• This can temporarily impact your credit score.

• Discipline is critical; paid-off cards must not be reused.

• Small interest-rate differences may not justify the risk.

  
  

This strategy only makes sense when:

• The interest rate difference is significant.

• Spending is controlled.

• The goal is clearly defined: debt elimination.

  
  

Final Thoughts on Method 3

Our Cashflow Reallocation Strategy is not for everyone.

• It is not emotionally driven like the Snowball Method.

• It is not as straightforward as the Avalanche Method.

• It is cashflow-focused, interest-focused, and deliberate.

  
  

The key principle is simple:

We don’t try to look good on paper while bleeding interest. We optimize cash flow first — the credit score can recover later.

Used responsibly, this method can be the fastest mathematical route out of high-interest debt, especially when your cards are already maxed or partially utilized.

Until our next post, take (financial) care!!

Be sure to visit our Disclaimers & Disclosures section.