Getting out of debt in 2025: Snowball Vs Avalanche Method Debt Method

Getting out of debt can feel overwhelming, but having a clear strategy can make all the difference. Two popular methods for tackling debt are the Snowball Method and the Avalanche Method. Both are effective, but they suit different personalities and financial situations. Below, we’ll walk you through step-by-step instructions for each approach and explain why the Snowball Method might work best for many people.

The Snowball Method

This method focuses on paying off the smallest debt first, regardless of the interest rate. The idea is to build momentum and motivation as you clear smaller debts quickly. Here’s how to do it:

Step 1: List Your Debts

Write down all your debts, including the balances and minimum payments. Organise them from smallest to largest balance. For example, this might include your credit card, Buy Now Pay Later, or a car loan.

Step 2: Budget for Minimum Payments

Make the minimum payment on all debts except the smallest one. This ensures you stay on track and avoid late fees. Use tools like our Budget Planner to help you map this out.

Step 3: Throw Extra Money at the Smallest Debt

Put any extra money you can find in your budget toward the smallest debt. This could come from cutting back on unnecessary expenses (like that daily takeaway coffee) or selling unused items on Facebook Marketplace or Gumtree.

Step 4: Celebrate Your Wins

Once you pay off the smallest debt, celebrate your progress! Treat yourself to something small, like a picnic in the park or a new book. Use this momentum to tackle the next smallest debt on your list.

Step 5: Repeat

With the smallest debt gone, move to the next one on the list. Keep paying minimums on the others and put all extra cash toward the next target.

The Avalanche Method

This method prioritises paying off debts with the highest interest rates first. While it might save you more money in the long run, it can take longer to feel like you’re making progress.

Step 1: List Your Debts

Write down all your debts, this time organising them from highest to lowest interest rate. In Australia, this might mean starting with a personal loan or credit card debt with a high interest rate.

Step 2: Budget for Minimum Payments

As with the Snowball Method, make minimum payments on all debts except the one with the highest interest rate.

Step 3: Focus on the Highest Interest Debt

Direct all extra money in your budget to the debt with the highest interest rate. This will reduce the overall cost of your debt over time.

Step 4: Tackle the Next Debt

Once the highest interest debt is paid off, move to the one with the next highest rate. Continue this process until all debts are paid.

Which Method Works Best?

While the Avalanche Method saves more money on interest, the Snowball Method often works better for most people. Why? Because money management is as much about mindset as it is about maths. The small wins you achieve using the Snowball Method provide a psychological boost and keep you motivated.

If you tend to lose steam with long-term goals or need quick progress to stay committed, go for the Snowball Method. On the other hand, if you’re highly disciplined and focused on minimising costs, the Avalanche Method could be your best bet.

Questions to Ask Yourself About Your Money Mindset and Overspending

Understanding Your Money Mindset

1. What does money mean to me?
   Is it security, freedom, stress, or something else?

2. What beliefs about money did I learn growing up?
   Were phrases like “Money doesn’t grow on trees” or “We can’t afford that” common in your household?

3. Do I believe there’s enough money to go around?
   Or do I feel like there’s never enough?

4. How do I feel about wealthy people?
   Do I admire them, judge them, or feel indifferent?

5. Do I associate money with guilt, fear, or shame?
   If so, what situations trigger those emotions?

6. How do I celebrate financial wins?
   Do I acknowledge progress, or do I brush it off and focus on what’s next?

7. Am I comfortable talking about money?
   With friends, family, or a partner? Why or why not?

Reflecting on Overspending

1. What are my biggest spending triggers?
   Stress, boredom, social pressure, or emotional highs/lows?

2. Do I often buy things I don’t need? Why?
   Am I trying to feel better, fit in, or reward myself?

3. How often do I regret purchases?
   Which items or types of spending tend to cause regret?

4. Do I use spending to avoid dealing with emotions?
   What feelings am I trying to escape?

5. Am I clear on what I value most in life?
   Is my spending aligned with those values?

6. How often do I track my spending?
   Do I avoid looking at my bank account or credit card statements?

7. What’s my “weak spot” for overspending?
   Example: online shopping, dining out, subscriptions, or travel.

8. Do I spend to impress others?
   Are my purchases influenced by what I think others will think of me?

Shifting Your Perspective

1. What’s one belief about money I want to change?
   How could I reframe it into something more positive or empowering?

2. How can I create healthier habits around spending?
   Example: Pause before making a purchase or set spending limits.

3. What brings me the most joy when I spend money?
   How can I focus on spending in ways that align with my values?

4. What would an abundant life look like for me?
   Does it mean more money, or is it about financial security, freedom, or experiences?

5. What’s one step I can take today to improve my money mindset?
   Example: Journaling about gratitude, setting a savings goal, or decluttering financial stressors.

Answering these questions honestly will give you clarity on how you view money, where you may be overspending, and how you can align your habits with your goals and values. Ready to dive deeper?