Despite what many personal finance experts will tell you, there is no debt repayment method that fits every situation for every person. The ‘do whatever works best for you’ model isn’t going to sell any books though..

I’m not a personal finance expert, so I’m free to share my honest opinion of the two most common debt repayment methods, the debt avalanche and the debt snowball, and suggest an alternative that I think brings out the benefits of both.

Is anyone else bored stiff with the snow metaphors? I think it’s time to crank up the heat with the debt bonfire! Let’s visualize!

Imagine that you’re on a beach. The sun is setting and you’re building up a fire. You’ve got a pile of wood next to the fire pit – your debt. You start small at first, building up a base and preparing the kindling. You light the small pieces and even though you’re just getting started, you begin to feel the heat. You keep adding bigger sticks and then logs, one by one, and the fire grows. Eventually you’ve built it up so that the flames are licking the sky. You watch your wood pile dwindle as you add each piece. Eventually you set the last log onto the fire and break into a triumphant grin. The final things you toss in are your loan documents and you watch them shrivel up and burn to ash, viking funeral celebration style.

Now that got me fired up more than the image of snow sliding down a hill.

Debt Avalanche

Order your debts from highest to lowest interest rate, and tackle the one with the highest interest rate first.

The debt avalanche will save you money over the course of your repayment, but only if you stick to the plan. If you lose motivation, even for a short time, you can completely wipe out any gains you’ve achieved by choosing this method rather than a more psychologically efficient one. Use with extreme caution, and only if you have the willpower equivalent of an obedient robot with a passion for mathematics.

Debt Snowball

Order your debts from smallest to largest amount, and tackle the one with the smaller amount first.

Support for the debt snowball method abounds, from Dave Ramsey‘s decades of success stories to research from the Harvard Business Review and the American Marketing Association’s Journal of Marketing Research. If you’re a squishy sack of habits and urges like me, this method will give you the psychological boost you need to stay the course and kick your debt to the curb. One disadvantage is that it doesn’t take into account other motivating factors like the urge to ditch ultra high interest debt, or to save face at home by paying back a personal loan to a family member.

Debt Bonfire

Order your debts from most to least motivating, and tackle the one that you find motivating first.

Instead of finding a suggested plan and following it, I recommend creating your own plan. This way, you can have the structure of a plan but in a customized way that will keep your motivation bonfire burning right down to the coals.

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Which Debt Payoff Method Is Right For You?

I prefer the hybrid method of the debt bonfire, because I want to utilize every available method and take advantage of the best aspects of each one. If you find yourself making exceptions to the debt snowball or debt avalanche method, maybe it’s time to admit that you should be creating your own plan too!

Let’s say that these are your debts:

  • $3,000 / 20% / credit card / bank
  • $25,000 / 5% / student loan / government
  • $2,000 / 0% / personal loan / family

Using a repayment calculator with a monthly budget of $1,000, you’ll find that the debt snowball and debt avalanche method resulted in the same debt free date, and that the difference in interest was only $358 over the 34 month payoff timeline.

If you happen to get discouraged using the debt avalanche method and stop paying more than the minimums for a few months, say goodbye to some of that extra cash and potentially your debt free date too! I’ll happily pay $10/month more in interest as insurance on my debt free date.

That being said, if the $25,000 student loan happened to be at a 10% interest rate, the debt avalanche method would save you one month and $695 in interest. Maybe you’d be more motivated to pay off a higher balance first at that rate.

Individual considerations for your debt free journey:

  • interest rate
  • amount
  • payment history
  • relationships
  • personality
  • type of debt
  • cash flow
  • legal consequences
  • emotion

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Let’s look at the example above again. What kind of considerations might these three debts bring?

  • $3,000 / 20% / credit card / bank – high interest rate, emotions from overspending on credit, unsecured debt
  • $25,000 / 5% / student loan / government – medium interest rate, high amount, socially ‘acceptable’ debt
  • $2,000 / 0% / personal loan / family – low interest rate, low amount, relationships, emotions from borrowing from a family member

What if, above all, you hate your credit card because the interest rate is insane and it constantly brings up feelings of shame for overspending? You might start following the debt avalanche method because of this preference for paying a high interest debt first.

What if you then felt guilty for borrowing money from a family member, but it’s at 0% interest and therefore last in the prescribed order? You might decide to follow the debt snowball method to clear this one before your student loan.

What if I told you that you could do both?

Using the debt bonfire method, you order your debts from most to least motivating.

  • $3,000 / 20% / credit card / bank
  • $2,000 / 0% / personal loan / family
  • $25,000 / 5% / student loan / government

Now you’re free to tackle your debts in the order that will fuel your motivation and encourage you to stick with the program for the entire debt repayment timeline. As you pay off one debt, the thought of paying off the other debts will become more motivating because you’re also getting the psychological benefits of completing an item on your list.

This method has the added bonus of not making you feel like you’re cheating on the process. There can be a lot of guilt associated with making ‘exceptions’ to the debt snowball or debt avalanche methods. Questioning yourself on the method can lead to losing motivation and potentially delaying your debt free date. If you include these ‘exceptions’ in your plan from the beginning, there’s no guilt! In fact, there’s another motivational boost from following your goals as outlined.

If math is your ultimate motivator, and you can honestly say that you will stick to your debt repayment plan, go with paying the highest interest rate debts first.

If relationships are the most important to you, and getting that loan from your grandmother off of your conscience will get you fired up, pay that one first.

If you owe money to the government and could potentially go to jail if you don’t pay it, maybe start there.

Are you following the debt snowball or debt avalanche, or did you make up your own method like the debt bonfire?

14 Replies to “The Debt Bonfire Method”

  1. Oh this is super cool. I like the avalanche from a math perspective, but snowball wins out most of the time when I think about it, because in general the sorts of folks finding themselves needed to tackle this likely could benefit from the small, quick wins that a snowball gives.

    But the bonfire is cool, and offers similar psychological benefits. Perhaps for some the smallest ones will be among the first regardless, just because it’s seen as so easy.

    Ultimately I’d say the math still favors the avalanche, but the bonfire is a cool twist on debt repayment.

    1. The one downside of the avalanche is that the math only works if it’s followed. If you lose the motivation and pay less on your debt for just a few months, there goes the money you thought you were saving. If someone set up a contract with their employer to forward a certain amount of their pay every month to the debt, entirely automated, then I might consider the debt avalanche method to be more effective. I think only a very tiny percentage of people could pull a true debt avalanche off, with no human error, especially over longer debt payoff timelines.

  2. Hahaha, I like this! After all, personal finance is all about keeping it personal; I think there’s something to be said for eliminating debt based on the debt you *want* to get rid of. I guess I didn’t follow that approach because I let the numbers do more of the guiding on that front. For example, I HATE car payments, and yet we still have one. The math works out that the payments and interest are so low, that it just makes sense to pay off all other debts before the car payment. If I did a bonfire, though, I’d torch that sucker first just because I hate them so much lol.

    1. I think the debt bonfire method is all about considering your personality and lifestyle in addition to the math. In your case, I would say that hating interest > hating the car payment so the debt avalanche seems to work for you. If you can stick to it 100% and keep your motivation high for the entire timeline, that’s a great strategy!

      I have a friend who is paying off her car before a loan with a slightly higher interest rate, but she is FIRED UP to get rid of this car payment. I’m talking second job, cutting back expenses further every month, obsessed. She said that if she started with her other loan, there’s no way she would be this motivated. She’s cut at least a few months off of her debt repayment timeline just because of her high motivation. If she was trying to work the debt avalanche, she probably would have given up several times by now!

  3. I love this!

    I always called it a snowball fight in my head 🙂 I’d avalanche until I got bored with the plodding, then throw a few snowballs in the mix, then back to the avalanche.

    I dig your explanation and analysis!

    1. Cash flow is definitely under my list of considerations. For me personally, I have two large (tens of thousands of dollars) debts – either would take years to pay off and they have a similar payment amount. I think focusing on cash flow could work really well for others, especially those with short payoff term debts because it would give that ‘quick win’ feeling!

  4. I like the way you think, who wants to think about snow so much anyways!
    The example if owing money to family is such a good one. It might not cost you anything but the emotional guilt could do even more harm. Sometimes it’s not all about the numbers.

    1. Guilt is a trigger for overspending in many of us, so you could end up delaying your progress even more! I find it frustrating when people only consider one element of a problem. Humans are multi-faceted and our minds work in complex ways. We can’t distill that into a simple math equation!

  5. Love this post!

    I started with the avalanche method – but there were 2 loans (the very first two that I ever took out) that just annoyed the c**p out of me because I had them for so long.

    I felt SO much better just paying the stupid things off right away, even though they weren’t the highest interest.

    1. I love that! I started with the one that annoyed me the most, but now I’m thinking of switching to the highest interest. I’m all about whatever keeps me motivated, especially since I’ll be in this for almost 5 years total.

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