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If you want to stir up a hornet's nest among personal-finance bloggers, declare that the debt snowball is far superior to the debt avalanche, or vice versa.

Most people won't understand what the heck you're talking about, but passionate adherents of either debt payoff method will spend hours honing their arguments and rebuttals.

Both approaches (which I'll explain in a minute) have their advantages and drawbacks, but a fistfight over methods is the last thing you need when you're sinking deeper in debt.

You just want to know the best strategy for clawing your way out.

So here's the short version: Any method can work if you free up enough income and apply it diligently to your debts. But if you want to craft the smartest payoff plan possible, you shouldn't marry any single approach but instead create a plan that reflects your individual situation and types of debt.

I have some ideas about how best to do that, but let's define some terms before we go further:

  • Using the debt snowball approach, you order your debts by size and pay off the smallest first, on the theory that quick wins will keep you motivated. You throw as much money as possible at your chosen debt while paying the minimums on the rest. When the targeted debt is gone, you apply the same payment plus the minimum to the next debt, and so on. The amount you apply to your targeted debt grows as you pay off each bill, and you pack together those little victories to make a big dent in what you owe. This method is touted by personal-finance guru Dave Ramsey and his many enthusiastic followers.
  • With the debt avalanche method, you pay off your debts by interest rate, tackling the highest rates first. The term was popularized by blogger Flexo at Consumerism Commentary, although the method has been applied for years by financial planners and others. The avalanche is the mathematically superior approach because you will pay less interest and can get out of debt quicker.
  • A third method, the debt snowflake, can supplement the other strategies. When you snowflake, you look for little ways to trim your expenses. Brown-bagging it today? If you were "snowflaking," you would apply the $10 you'd saved on lunch directly to your debts, either the same day or at the end of the week (hopefully combined with other little snowflakes of savings).
  • Finally, because we're getting all chilly, I'll coin a new phrase: debt calving. A glacier calves when a big chunk of ice shears off its face, typically landing in the water with a big splash. Debt calving is when you get a big windfall and throw chunks of it at your debts.

Before you start freezing out your debts, though, you need to take a closer look at what you owe and create a plan.

List all of your debts

You need an inventory of everything you owe. Go through your bills and pull copies of your credit reports (get free access annually at to make sure you don't miss any accounts.

Liz Weston // Image: Liz Weston

Liz Weston

Don't forget to include:

  • Credit cards
  • Store cards
  • Gas cards
  • Personal loans
  • Retirement plan loans
  • Life insurance loans
  • Federal student loans
  • Private student loans
  • Mortgages
  • Home equity loans or lines of credit
  • Business loans
  • Auto loans
  • Boat loans
  • Other vehicle loans
  • Medical debt
  • Debt consolidation loans
  • Collection accounts
  • Payday loans
  • Pawnshop loans
  • Title loans
  • Overdraft balances

For each debt, you'll need to note whom you owe, how much you owe, the current interest rate and the minimum payment.