Snowball Or Avalanche: Which Debt Option Is The Best?

Aussies don’t know much about snow, not even with autumn around the corner. Most of us will be lucky to see a flake drop unless we book a flight to Queenstown, New Zealand. To be clear, snowball and avalanche are no relation to the white stuff in this context. As weird as it sounds, both apply to debt, specifically paying it off as soon as possible.

The Herald Sun reported earlier this year that the typical Australian household is in a “debt bombshell”. Finder ranks Aussie personal debt as the highest in the world as a percentage. These figures mean ordinary citizens from Down Under need advice and they need it quickly. You may be one of the lucky ones; if not, the following could come in handy.

Here are the pros and cons of the snowball and avalanche methods of paying back debt.

Tackling Interest Rates

Quite simply, the avalanche method seeks to pay back the loans with the biggest interest rates first. Snowballers do the opposite. An obvious advantage is the money saved by tackling the largest debt and not allowing the interest rates to escalate. In a perfect world, you will have to throw extra funds at it just to make sure the debt begins to tumble. Some people find this difficult for monetary reasons; however, all you have to do is rebalance your priorities. With an avalanche, the interest doesn’t add a significant amount to the overall balance as it does with an average bank agreement. Snowballers let the interest bump up the cost and it ends up hitting their wallet hard in the long-term. In general, most of us would love to pay out less every month and use the money for a constructive purpose.

Look Good, Feel Good

So, why do people prefer the alternative technique? It’s because humans need to see results as validation. The longer it takes for the flowers to bloom, the easier it is to get disillusioned with your finances and give up. When this happens, there is no telling what a person may lose. For example, houses and cars are two valuable pieces of collateral which the lender may take to satisfy the agreement. Although high-interest rates creep up, it isn’t something which the snowball effect considers to be a huge problem. Instead, it wants its followers to focus on gaining momentum and working their way to the top of the to-do list. By paying off the smallest debt first, you can tackle arrears quickly and with minimum fuss. The impact this has on a person’s attitude is massive and shouldn’t be understated. In fact, it is important to the point that it’s worth paying more in the long-term than trying to cut costs.

Name, Number And Rank

You aren’t in the army, or maybe you are. Who knows?! Anyway, regardless of any career choices, the debt rank is imperative to consider before choosing a repayment tactic. Advocates of the snowball have to remember that interest rates aren’t the only issues which can ruin finances. Think about court judgements and bailiffs who threaten to remove goods if their employers aren’t satisfied. And, with the right warrant, they can come into a debtor’s home and take anything to the value of the balance. It’s pretty scary, which is why paying off the largest sum first tends to work out well in this circumstance. That way, the creditors won’t escalate the case to the justice system and you won’t have to deal with angry enforcement officers. Of course, lenders will try to convince you that their debt isn’t equal so that you give it your utmost attention. This is where you have to understand what is best for your financial situation.

Accessibility

One thing that makes the snowball method appealing is the money. Quite simply, dealing with the smaller balances is a short-term way to keep expenses to a minimum. Usually, a debtor can use a wage to chip away at a balance until it is all but gone. Or, they can use Quickle loans as a quick form of finance. Once the money is in an account, it can go to the lender and provide people with an element of breathing space. Now, the question most people jump to is “why can’t I do this as an avalanche advocate”? The answer is that you can, but using a payday loans company only adds to the costs. Because you need a large amount of cash, the repayment rates will be higher than if you use the snowball trick. Considering the point of avalanching is to reduce interest payments, it seems silly to transfer the balance. Small loans businesses are helpful in the right situations. You have to figure out when that is and make your move.

Minimum Payments

What separates snowballers from avalanchers is the tradition. Think about a stereotypical loan and the clauses. When you have a mortgage, for instance, there is no reason to pay off the whole balance by the end of the month. There is an agreement in black and white between you and the bank only to hit the minimum amount. The same goes for credit cards, although the deal is more of a gentleman’s agreement than a binding clause. Therefore, the snowball technique is popular because it keeps with tradition and is familiar. Forking out for a loan to avoid complications appears daft, yet it’s something people choose to do on a daily basis. Even though the money is important, it’s not as valuable as getting caught out and making a mistake. The avalanche method is tricky, and it’s mainly due to the fact that it may take a while to comprehend.

In Conclusion
After all of that, what is the best method? Well, the answer is that it’s a personal decision. Because the finances are yours, only you know which pros and cons cancel each other out. However, anyone that wants to save money should think of becoming an avalancher. Conservative people, as a rule, are likely to be snowballers.