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Fastest Way to Pay Off Loans: Snowball vs. Avalanche Method

Many Malaysians struggle with loan repayments, whether it’s credit card debt, personal loans, or car financing. Carrying too much debt doesn’t just strain your finances but it can also take a toll on your mental health. The real question is, what’s the fastest way to pay off your loans?
Two popular methods often recommended by financial experts are the Snowball and Avalanche techniques. Each has its own benefits depending on your goals and financial situation. Let’s explore how both strategies work.

What Is the Snowball Method?

The Snowball method, or debt snowball technique, was popularised by financial expert Dave Ramsey. The main focus of this method is to pay off the smallest debt first, even if it has a lower interest rate.

How Does It Work?

The Snowball method begins by listing all your debts in order from the smallest to the largest amount. You continue paying the minimum instalments for every debt except the smallest one. Any extra money you have each month should go toward settling the smallest debt as quickly as possible. Once that debt is cleared, you move on to the next using the same approach. Repeat this process until all your debts are paid off.

Advantages of the Snowball Method

This method offers a sense of satisfaction as small debts are paid off quickly, which helps to boost motivation and keeps you going. It is suitable for those who need psychological encouragement to stay disciplined in managing their debt payments.

Disadvantages of the Snowball Method

Although effective, the Snowball method may lead to higher interest costs over time since it does not prioritise debts with high interest rates. In terms of total repayment, it is less efficient than the Avalanche method, which focuses more on interest savings.

What Is the Avalanche Method?

The Avalanche method, also known as the debt avalanche technique, focuses on repaying high-interest debts first, regardless of the remaining balance.

How Does It Work?

The Avalanche method begins by listing all your debts in order from the highest to the lowest interest rate. You continue paying the minimum instalments for all debts except the one with the highest interest rate. Any extra funds should be channeled toward that high-interest debt until it’s fully repaid. Once cleared, redirect the extra payments to the debt with the next highest interest rate. Repeat this process until all your debts are paid off.

Advantages of the Avalanche Method

The Avalanche method helps reduce the total interest you pay over time, as debts with higher interest rates are prioritised first. It can also help you become debt-free faster in the long run. This method is ideal for those who are disciplined and willing to stay the course, even if results take time.

Disadvantages of the Avalanche Method

However, the Avalanche method may feel slow at first because smaller debts are not cleared quickly. It may not be suitable for those who need early progress to stay motivated, unlike the Snowball method which provides quicker wins through small debt repayments.

Snowball vs. Avalanche: Which Is Better?

The Snowball method is ideal for those who need quick motivation, as it gives a sense of satisfaction from seeing smaller debts paid off one by one. This approach focuses more on the psychological boost it provides.

The Avalanche method, on the other hand, is better suited for those who want to minimise interest costs by tackling high-interest debts first. It’s more efficient from a mathematical standpoint but requires more patience.

Example:
  • Debt A: RM2,000 (18% interest)
  • Debt B: RM6,000 (12% interest)
  • Debt C: RM8,000 (8% interest)
Using the Snowball method, you would pay off Debt A first due to its smaller balance even though it carries a high interest rate.
Using the Avalanche method, you would also start with Debt A, but only because it has the highest interest rate. If, for instance, Debt B had the highest rate, the Avalanche method would prioritise that instead.
In some cases, both methods may start with the same debt, but the order of repayment will differ after that.

Can You Combine Both Methods?

Yes, some believe you can combine the Snowball and Avalanche methods to achieve a more balanced debt repayment strategy. For example, you could begin by paying off the smallest debt first to build momentum and maintain motivation, similar to the Snowball method.
After that, you can shift your focus to the debt with the highest interest rate to maximise cost savings, as recommended in the Avalanche method.
However, this approach is subjective and depends on each individual’s priorities, discipline, and financial situation. There is no one-size-fits-all method. What matters most is choosing a strategy you can stick with consistently until all debts are fully paid off.

Choose the Right Method Based on Your Situation

Before deciding on a debt repayment method, take time to evaluate your total debt amount, interest rates, monthly cash surplus, and level of financial discipline. Avoid sticking to minimum payments alone, as this will prolong your journey to becoming debt-free and increase the total interest paid over time.
If you’re looking to manage your debt more effectively or need Shariah-compliant financing that fits your budget, OSK Syariah Capital is here to help. We offer transparent and competitive financing solutions tailored to support your long-term financial goals.

Frequently Asked Questions (FAQ)

1. Can I use the Snowball method for Shariah-compliant financing?

Yes. The Snowball method is simply a strategy for prioritising debt repayment and is not limited to any specific loan type. It can be applied to Shariah-compliant financing without any issue.

2. What percentage of my income should go toward debt repayment?

Ideally, you should allocate at least 20% of your monthly income for additional debt payments, if financially possible. This helps accelerate your journey to becoming debt-free.

3. What are the risks of only making minimum payments?

If you only pay the minimum amount, it will take significantly longer to clear your debt. Interest will continue to accumulate, potentially increasing your overall financial burden. Additionally, it could negatively affect your credit score, making it harder to secure financing in the future.

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