You will be able to explain when clearing the smallest balance first is worth the extra interest.
Mei Ling has tried to pay off her card twice before. Both times she started strong, putting every spare dollar on it, and both times she stopped after a few months when the balance still looked enormous and nothing on her list had gone away. When she read about the avalanche in lesson 6.2, her first thought was that 20 months without clearing a single debt sounded exactly like the last two attempts.
There is a method built for people like her. It costs more in interest, and for some people it is still the better choice.
The snowball method has the same structure as the avalanche, with a different order. Pay the minimum on every debt, every month, on time. Then send all of your extra repayment money to the debt with the smallest balance, whatever its rate.
When the smallest debt is cleared, take everything you were paying on it, the minimum plus the extra, and roll it into the payment on the next-smallest balance. Keep going until the list is empty.
To sort your list, order the debts by balance, smallest first. Interest rates play no part in the order. A S$500 debt at 4% goes before a S$5,000 debt at 26%.
Her list sorted by balance, with the same example figures as lesson 6.2: the sofa instalment plan, S$1,500 at 6%; the personal loan, S$6,000 at 8%; the credit card, S$9,000 at 26%. Her budget is still S$800 a month.
Each month she pays the card's minimum and the loan's S$200, and everything else goes to the sofa plan. In the first month that is about S$324 on the sofa: its own S$60 plus about S$264 of extra money. The sofa plan is gone in month 5.
From month 6, the money that was going to the sofa joins the loan's S$200, and the loan is cleared in month 15. From month 16, everything that was going to both of them goes to the card. The card is cleared in month 26.
By the end, Mei Ling has paid about S$4,155 in interest. Under the avalanche, with the same debts and the same S$800, she paid about S$3,033 and finished a month earlier. The snowball costs her about S$1,122 more. Most of the difference is on the card, which sat at 26% while she cleared two cheaper debts first.
Set the two timelines side by side and the trade-off is plain. Under the snowball, Mei Ling clears her first debt in month 5 and her second in month 15. Under the avalanche, her first debt goes in month 21.
Each cleared debt does two things. It removes a bill, a due date and a statement from her life, which makes the remaining plan simpler to follow. And it frees a payment to roll into the next debt, which she can see happening. The list gets shorter, and she can feel the plan working well before the end.
That is what the extra S$1,122 buys: early, visible wins. For someone who has never started a repayment plan and stopped, that may not be worth paying for. For someone like Mei Ling, who has stopped twice, a plan that keeps her going to the end can easily be cheaper in practice than a plan that is cheaper on paper but abandoned in month eight. An abandoned avalanche leaves the debts at their full rates, often with new spending added, and that costs far more than S$1,122.
The avalanche suits you if you are confident you will stick with a plan whether or not you see quick results, and if the gap in rates between your debts is large enough for the savings to matter. The snowball suits you if you have started and stopped before, if a long list of separate bills is part of what wears you down, or if your debts have fairly similar rates, so the extra interest is small.
The gap in interest depends on your own debts. When the smallest balance also has a high rate, the two methods may give the same order and cost the same. When the smallest balance has the lowest rate and the largest has the highest, as in Mei Ling's case, the gap is widest. Lesson 6.4, Run avalanche and snowball on a worked example, has you measure the gap for your own list before choosing.
There is also nothing wrong with a mixed approach, such as clearing one very small debt first for the win and then switching to the avalanche. The rules that matter most are the ones both methods share: never miss a minimum, never split extra money across every debt, and roll each cleared payment into the next.
Take the page from lesson 6.1 again. This time sort it by balance, smallest at the top. The order from top to bottom is the order you would pay your debts under the snowball method, and it is worth seeing beside your avalanche order from lesson 6.2.
Sort your debt list by balance, smallest first, and write the order you would pay them under the snowball method.
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