Comparing Debt Avalanche and Debt Snowball: A Real-Life Example | Debt Payoff Calculator using Excel or Google Sheets

The purpose of this post is to compare the effectiveness of a debt avalanche spreadsheet and a debt snowball spreadsheet in helping individuals become debt-free faster. To illustrate this, I will present a real-life example of a family’s debt situation and evaluate whether the debt snowball or debt avalanche method proves more beneficial.

Displayed below is the spreadsheet depicting the debt avalanche method at the top.

Debt Avalanche Method in Excel or Google Sheets

In this post, we will explore the Debt Avalanche method and its implementation using Excel or Google Sheets. We will use a real-life example of a family’s debt situation to compare the effectiveness of the Debt Avalanche approach versus the Debt Snowball method.

The family in question has a total debt of $145,464, divided into four different debts. Debt one has the highest interest rate of 53,434, making it the primary target in the Debt Avalanche method. The debts are ordered from highest to lowest interest rates, with debt four currently in deferment at a 0% interest rate.

To maintain consistency, we will exclude interest calculations for the deferred debt and focus on estimating monthly interest payments for the other debts. The spreadsheet includes formulas that automatically calculate the monthly payment by subtracting the minimum payment from the total owed and adding an approximate interest rate.

The concept of both the Debt Avalanche and Debt Snowball methods is to apply the minimum payment of a paid-off debt to the next targeted debt. In this case, we start by paying off debt three, which has the smallest amount owed. The $300 minimum payment is redirected to debt two, which is being targeted more aggressively. By adjusting the payment to $1,230, we can see that debt two will be paid off faster than originally projected.

Continuing this approach, we observe that debt one, the highest interest debt, will be paid off in July 2029 instead of November 2030. The $1,230 payment is then applied to debt two, increasing the payment to $1,730. As a result, debt two is paid off in May 2031, significantly reducing the repayment time compared to paying only the minimum balance.

The same principle is applied to debt two, where the $1,730 payment is added to debt one, resulting in an accelerated repayment schedule. Using the Debt Avalanche method, this family is projected to become debt-free in February 2032, cutting over eight years off their repayment timeline compared to paying only the minimum balance.

In the next part of this post, we will explore the Debt Snowball method and compare its effectiveness against the Debt Avalanche approach.

Debt Snowball Method in Excel or Google Sheets

Now, let’s delve into the Debt Snowball method and how it can be implemented using Excel or Google Sheets. The spreadsheet setup and formulas remain the same; however, we will reorder the loans and debts to align with the Debt Snowball strategy.

In the Debt Snowball approach, we prioritize paying off the smallest balance first, regardless of the interest rates. We will begin with debt number one, which has a minimum payment of $300 and an interest rate of 5.49%. Since we are not considering interest rates in this scenario, we will continue making the minimum payment until this debt is paid off, which is projected to be in January 2027.

Once debt number one is paid off, we will take the $300 payment and apply it to the next loan, increasing the payment to $448. By dragging the formulas down, we can observe that this loan is being paid off before the second debt. Consequently, we redirect the $930 payment from debt number one to debt number two, resulting in a new payment of $13.78 for debt number two.

Continuing with the Debt Snowball method, we apply the accumulated payments to the remaining debt. With a payment of $1,878, the third debt is paid off swiftly, estimated to be in July 2032. As there are no more outstanding loans, we can finalize the spreadsheet with a debt-free date.

Utilizing the Debt Snowball method, following the same strategy of rolling over minimum payments into subsequent debts, this family is projected to become debt-free in July 2032. It is worth noting that the Debt Snowball method prioritizes psychological motivation by focusing on paying off smaller balances first, rather than considering interest rates.

In the next section, we will compare the Debt Snowball and Debt Avalanche methods to evaluate their respective advantages and determine which approach may be more suitable for different individuals’ financial situations.

Results: Debt Snowball vs Debt Avalanche

Determining the most effective approach to overcome debt, whether through the Debt Avalanche or Debt Snowball method, depends on several factors. These factors include interest rates, total amount owed, and minimum payments. In the case of this particular family, the Debt Avalanche method proves to be more efficient in terms of accelerating their journey to debt freedom compared to the Debt Snowball method.

It is important to consider individual circumstances and preferences when choosing between these two methods. While the Debt Avalanche method focuses on prioritizing higher interest debts, potentially leading to significant interest savings in the long run, the Debt Snowball method emphasizes the psychological motivation of paying off smaller balances first.

Ultimately, selecting the most suitable approach depends on your specific financial situation and personal preferences. It may be beneficial to evaluate your debt profile, including interest rates, amount owed, and minimum payments, to determine which method aligns better with your goals and circumstances.

Leave a Comment

Your email address will not be published. Required fields are marked *

Shopping Basket
Scroll to Top