Debt Payoff Priority Calculator

How Debt Payoff Priority Works

Two popular strategies govern debt payoff order: Avalanche (highest interest first) and Snowball (smallest balance first). Avalanche saves the most money; Snowball provides faster psychological wins.

Avalanche method (mathematically optimal):

1. List all debts by interest rate, highest first
2. Pay minimums on all debts
3. Direct all extra money to the highest-rate debt
4. When paid off, roll that payment to the next highest rate

Interest cost formula:

Monthly Interest = Balance × (Annual Rate ÷ 12)

Worked example: Avalanche:

Extra available cash: $200/month → Add to credit card first ($300 total).

The credit card at 24% costs $1,200/year in interest, so attacking it first saves the most.

Snowball method:

Same situation, and you still pay every minimum. The extra goes to the smallest balance instead: the credit card at $5,000, which happens to match Avalanche in this example. If the car loan were $3,000 rather than $12,000, Snowball would attack that first for a faster first win.

Why the minimums matter to the answer

This is the part most payoff calculators quietly skip. Your total monthly outlay is every minimum added together, plus whatever extra you can find. In the table above that is $100 + $220 + $195 + $200, so $715 a month, not $200. The difference is not academic: those three debts accrue $252.50 of interest in the first month alone, so a calculator fed only the $200 extra would conclude the balance grows forever and the debt is unpayable. At $715 it clears in about five years.

The other half is the roll-forward. When the credit card clears, its $100 minimum does not go back into your spending money. It joins the pool attacking the next debt, alongside the original $200. That snowballing effect is where most of the speed comes from, and it is why both methods finish far sooner than a naive per-debt calculation suggests.

Hybrid approach:

Pay off any debt above 10% using Avalanche. Below 10%, consider investing the surplus in index funds instead, since long-run returns of 7–10% may exceed the interest cost of low-rate debt. That comparison ignores the certainty of the debt return, though. Clearing a 6% loan is a guaranteed 6%; the stock market is not.

A note on which to choose

Avalanche always wins on arithmetic. It cannot do otherwise, because it kills the most expensive money first. But a 2012 study out of Northwestern found that people who cleared small balances first were more likely to stay on the plan at all, and a plan you abandon saves nothing. If the gap between the two methods below is small, take the one you will finish.