You will model both methods in a spreadsheet and pick the one you will follow.
Mei Ling has read both methods and still can't decide. The avalanche saves money. The snowball gets her moving. What she wants is a way to see both, for her own debts, before she commits to one for the next two years. A spreadsheet does that. Once it is built, a different monthly budget or a new debt is a quick change.
In this exercise you build a model that runs both methods side by side. You first rebuild the worked example from lessons 6.2 and 6.3, so you can check your formulas against known answers, then run your own debts through it. Allow about 30 minutes.
The figures are made up for the example. Mei Ling has S$800 a month for debt, and three debts:
A credit card: S$9,000 at 26% a year, minimum 3% of the statement balance or S$50, whichever is higher A personal loan: S$6,000 at an EIR of 8%, S$200 a month A sofa instalment plan: S$1,500 at an EIR of 6%, S$60 a month
The two loans are modelled as a fixed monthly payment against a reducing balance, which is what the EIR describes. Real loans have a set term and the lender's schedule may differ slightly, which is fine for comparing methods.
At the top of the sheet, put the monthly budget, S$800, in a cell of its own. Below it, one small block per debt with its name, starting balance, yearly rate and minimum payment rule.
Arrange the debts left to right in the order you want to pay them. For the avalanche, that is highest rate first: card, loan, sofa. Make a copy of the whole sheet for the snowball, and reorder the debts there by balance, smallest first: sofa, loan, card. The formulas can then stay the same in both copies, because they always send extra money to the leftmost debt that still has a balance.
Each month gets one row. For each debt, use four columns: opening balance, interest, minimum and closing balance. Then add a group of extra-payment columns, one per debt.
The opening balance in month 1 is the starting balance. In later months it is the previous month's closing balance. Interest is the opening balance times the yearly rate divided by 12. The minimum follows each debt's rule, capped at what is owed: for the card, =MIN(MAX(3%*(open+interest),50),open+interest), and for each loan, =MIN(200,open+interest) or =MIN(60,open+interest).
Next, a single cell for the money left after minimums: the budget minus the sum of the three minimums. That is your extra repayment money for the month.
Then the extra payments, in order. The first debt gets =MIN(left, open+interest-minimum). The second gets whatever is still unspent, =MIN(left minus the first extra, its own open+interest-minimum). The third gets what remains after both. Finally, each closing balance is open plus interest minus minimum minus extra.
Copy the row down for about 40 months.
Add three results under each copy: the month each debt is cleared, the total months to be debt-free, and the total interest, which is the sum of every interest column.
Your avalanche copy should clear the card in month 21 and both loans in month 25, with total interest of about S$3,033. Your snowball copy should clear the sofa in month 5, the loan in month 15 and the card in month 26, with total interest of about S$4,155. That is the whole trade-off in a line: the snowball clears its first debt in month 5, the avalanche in month 21, and the snowball costs about S$1,122 more and takes one extra month.
If your numbers are close but not exact, check rounding first. If they are far off, check that the card's minimum is worked out on the balance after interest, and that the extra column for the second debt subtracts what the first one took.
Replace the example inputs with your own list from lesson 6.1, Put every debt on one page, and your own monthly budget. Add or remove debt blocks to match the number of debts you have. Use the minimum rule from each card's terms, and each loan's actual instalment.
Sort the avalanche copy by rate and the snowball copy by balance, and read off the results. You may find the gap is large, as it is for Mei Ling, or tiny, if your smallest balance also carries your highest rate. Try raising the budget by S$50 or S$100 to see how much time and interest that saves under each method.
A finished model has your inputs at the top, two copies that run every month to zero, and three results under each: when each debt is cleared, months to debt-free and total interest. Beside them sits one sentence naming the method you will follow and why.
Mei Ling chose the snowball. She knows from two failed attempts that the early wins matter to her more than S$1,122 spread over two years, and she wrote down both figures so the choice was made with her eyes open. Your choice may be different. Build the example first, check it against the figures above, and then let your own numbers have their say.
Rebuild the worked example in a spreadsheet, check you get similar results, then run your own debts and write the method you will follow.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).