Should I pay off the smallest balance or the highest interest rate first?
The avalanche method — highest interest rate first — is mathematically optimal and always costs less. The snowball method clears the smallest balance first, which costs more in interest but produces visible wins sooner. The gap between them is usually smaller than people expect.
A $4,000 card at 22% and a $9,000 car loan at 14%, with $300 extra each month, using avalanche:
Debt free in 2y 5m using the avalanche method. Total interest $2,424, total paid $15,424.
Snowball wins when
- You have abandoned payoff plans before and need early momentum
- The interest-rate spread across your debts is narrow, making the extra cost small
- Clearing entire accounts frees up minimum payments and simplifies your month
Avalanche wins when
- One debt carries a much higher rate than the rest — a credit card among car loans
- You are motivated by the numbers themselves rather than by milestones
- The interest saved is large enough to matter to your timeline
The bottom line
Run both. If avalanche saves a trivial amount, choose whichever you will actually finish — a plan you abandon costs more than any interest difference. If it saves a lot, that is the cost of the psychological benefit, and worth knowing before you choose.
Run it with your numbers