Solutions for paying down debt: Avalanche, Snowball or HELOC? (2024)

With interest rates continuing to change, having a debt control plan is essential to avoid spending extra money on interest. There are lots of tricks and tips recommended by experts to help you get a handle on your debt, if you need to. Two of the most popular? The avalanche method and the snowball methods popularized by national financial expert and bestselling author Dave Ramsey. Another way to pay down debt is by taking out a loan, such as a HELOC, assuming its interest rate is less than what you’re paying on other debts.

Summary of 3 methods for paying down debt:

Normally, an avalanche isn’t a good thing. But when it comes to debt reduction, it certainly is. This method of paying down debt works well for people who want to save as much money as possible. Many experts say this is the most financially savvy debt repayment plan because it requires you to tackle your highest-interest debt first, then your second highest, and so on. Because you are starting with the largest loan first (mortgages are not included), this method takes longer than others (we’ll talk about the snowball debit reduction plan in a moment). Therefore, it takes a lot of patience to persevere with the avalanche method.

Once you pay off the first, highest interest debt, you combine that debt repayment budget to the minimum payment you were making on your next-highest-interest debt, moving down the list. According to Ramsey Solutions, it takes an average of 18-24 months to accomplish paying off the first debt which may seem like a long time for many of us. The good news? Since you’re targeting your most “expensive” debts first, you’ll save more money on interest than you would by using the debt snowball method, for example.

Here's how one person used the avalanche method:

Jim has several debts to pay off, but he’s also a saver. He understands the psychological lift that ticking off debts one by one via the snowball method. However, he is more concerned with paying less interest overall, even though it might take longer to erase one debt. To determine his next steps, he put all of his debts in order, listing the highest interest rate debt first.

• 20% interest rate credit card: $3,000
• 17% rate personal loan: $5,000
• 8% rate student loan: $20,000
• 6% car loan: $10,000

To successfully employ the avalanche method, Jim would need to start paying off the credit card bill first. He would pay more than the minimum balance so the debt could be erased sooner. For the other three loans, he’ll just pay the minimum amount.

Jim is chiseling away at the credit card debit and paying as much as he can each month. He is hoping to have the debt erased within two years. When he achieves a zero balance on his credit card, he’ll tackle his personal loan. He’ll pay as much as he can, while continuing to pay the minimum balance on his other loans. When his personal loan balance is zero, that loan gets wiped out and is replaced by the student loan, followed by the car loan.

The avalanche debt strategy may look easy on paper, but you’ve got to have steely discipline and keep your eyes on the prize.

It doesn’t require snow, just a pile of debt that you shovel away, bit by bit. The way the snowball debt strategy works is actually quite simple. Start by ranking your debts in order by the amount you owe, from smallest to largest. Next, put all the money you’ve budgeted for debt repayment toward the smallest of those debts and only pay the minimum payment on your others. Then, when that first debt is fully paid off, reallocate that money onto the next smallest debt, and move along to the next smallest debt.

The debt snowball pay down method is more a mental strategy than a financially savvy one. Since you’re essentially paying off one debt at a time, you may feel like you’re making more progress than if you tried tackling all your debts at once. It provides a chance to celebrate small wins to keep you motivated, which can work very well for some people. The drawback? By making only minimum payments on some of your debts, you’ll pay more interest because it’ll take you longer to pay them off.

To bring the “snowball” concept to life, let’s use a hypothetical example.*

Lindsey has the following debts to pay off:

• Medical bill: $700 (minimum payment: $50)
• Credit card balance: $5,000 (minimum payment: $125)
• Auto loan debt: $10,000 (minimum payment: $175)
• Education refinance loan balance: $15,000 (minimum payment: $200)

^{*These loan balances, interest rates, and minimum payments are for illustrative purposes only. Check with your lender to find out your minimum payment and other details.}

Lindsey’s monthly minimum payments add up to $550. On top of that, she calculates she has an extra $650 in her monthly budget to put toward her debt.

Since her medical bill is the smallest, Lindsey tackles that one first. She combines the $50 minimum payment with her extra $650 to make a $700 payment. Just like that, her medical bill has been fully paid off in one month’s time.

Here comes the snowball.

Next to confront is hercredit card debt. Lindsey takes that $700 that she put toward her medical bill last month and snowballs it onto the $125 minimum payment she made toward her credit card that same month. That means she’ll make a $825 payment this month toward her credit card. Lindsey will continue to pay that $825 every month until her credit card bill is completely paid off. Then comes theauto loan. Lindsey’s $825 monthly payment will snowball to $1,000 after combining with the $175 auto loan minimum payment. Starting to get the gist?

When that’s paid off, the $1,000 monthly payment will snowball into a $1,200 monthly payment on hereducation refinance loan. Lindsey will make that $1,200 monthly payment until her loan balance is completely paid off.

These “pay off” milestones achieved by the snowball method are the shot in the arm many people need to continue wiping out their balances, one loan at a time. The psychological boost experienced is what makes this method so popular, according to Ramsey Solutions.

Maybe the debt snowball or avalanche pay down method isn’t for you. That’s OK! If you own a home and have at least 15-20% equity, another option for paying down debt is by taking out a home equity line of credit (HELOC) against the value of your home. Also known as a “second mortgage,” a HELOC can provide you with one tidy loan to keep track of, instead of having to pay multiple bills. As mortgage rates continue to climb, and HELOCs have a much lower interest rate than credit cards, using home equity is becoming a popular option to ensure liquidity. According to the latest figures from TransUnion, HELOCs were up 41% YOY in the third quarter of 2022. (https://newsroom.transunion.com/q4-2022-ciir/)

For maximum flexibility, HELOC funds can be used for many purposes, from debt consolidation to renovations to an investment property. If the interest rate on your HELOC is lower than your current mortgage rate, a HELOC could also be a smart way to reduce your mortgage principal if you have a small outstanding balance.

The other benefit to a HELOC’s revolving line of credit is that you can draw from it for years, typically ten. During that time, you only pay interest on what you draw. That means you could take out a HELOC, draw the money you need to satisfy your debts, and chip away at the money you drew over the course of 10 years. Then at the end of that draw period, you’ll make principal plus interest payments on your remaining balance.

Another plus to taking out a HELOC? if you need the money soon, some lenders offer fast track approvals, such as FastLine from Citizens. This award-winning* line of credit enables you to get approval for your loan in as little time as two weeks. And getting the money that you need sooner can get you started on paying it off earlier.

Getting out of debt can be difficult, but there are several methods available to help you get a handle on it. From the snowball and the avalanche strategies, you can also consolidate your debt with one simple monthly HELOC payment. Check out our “How to pay off HELOC” article to see if a debt consolidation solution, like a HELOC, is a good fit for you.

Learn more about HELOCs