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Loans are like armpits - we all have them and they all stink. If you’ve been researching debt repayment strategies, you’ve probably come across two popular methods: the “Snowball” method and the “Avalanche” method.
The Traditional Approaches
The Snowball Method advocates paying off the loan with the lowest balance first, regardless of interest rate. The idea is that knocking out smaller debts quickly gives you psychological wins that keep you motivated.
The Avalanche Method takes a different approach: attack the highest interest rate first. This makes mathematical sense, right? Pay off the loans with the highest rates first to minimize how much you pay in interest over time.
What about those high-balance loans with lower interest rates? Could it result in more money going toward interest if you don’t payoff high balance loans first? Obviously, yes it could. The problem with both the Snowball and Avalanche strategies is that neither is truly optimal in many cases. They’re psychological shortcuts, not mathematically perfect solutions.
What psychologically motivates me is not paying more than I absolutely have to. What we really need is the optimal disbursement of your monthly debt budget across your loans so that you accrue the least interest possible over the lifetime of your loans.
What Does “Optimal” Actually Mean?
When we talk about optimal loan repayment, we’re looking for the strategy that literally minimizes the total amount you’ll pay. Most financial advice you’ll find fades into vague platitudes when you dig deeper. The Snowball method pings your brain with dopamine when you tick that loan off your list of debts, which is psychologically motivating but not necessarily the best financial move.
That’s why I created a loan payment calculator that looks at all your different debt repayment plans so you can see how that fad strategy you’re following compares with an optimized disbursement of payments toward your different debts.
See the Difference for Yourself
The app outputs a monthly payment strategy for you so you can implement it in real life. You can see the graph output for each payment strategy to visualize how many fewer months you’re paying towards loans and how many dollars you save with the optimal strategy.
Because when it comes to debt, I’d rather follow the math than the hype.