How this calculator works
How our debt payoff calculator works.
This tool answers one question: given your debts and a fixed monthly budget, how do the two best-known payoff strategies compare? Here’s exactly how it works.
The two strategies
Snowball pays minimums on everything, then puts every spare dollar at the smallest balance first. You clear whole debts quickly, which is great for motivation.
Avalanche pays minimums on everything, then targets the highest interest rate first. Mathematically this is the cheapest route — provided you stick with it.
The method, step by step
Each simulated month, the calculator does four things, for each strategy separately:
- Interest is added to every remaining debt at its annual rate ÷ 12.
- Minimum payments are made on every debt (never more than the remaining balance).
- Whatever is left of your budget goes to the target debt — the smallest balance (Snowball) or the highest rate (Avalanche). If the target is cleared mid-month, the remainder rolls to the next target.
- When a debt hits zero it’s gone, and its minimum payment is freed up for the rest — that’s the “snowball” effect both strategies benefit from.
The months are counted and the interest is totalled until everything is paid off. If your budget can’t ever get ahead of the interest, the calculator says so rather than showing a misleading number.
A worked example
Two debts — a $10,000 loan at 25% (min $100), and a $2,000 loan at 5% (min $50) — with a $500 monthly budget:
| Strategy | Debt-free in | Total interest |
|---|---|---|
| Snowball (smallest first) | 2 years 10 months | $4,614 |
| Avalanche (highest rate first) | 2 years 8 months | $3,744 |
Avalanche saves $871 here because Snowball spends its early months clearing the cheap small loan while the 25% debt keeps compounding.
Sometimes the two strategies tie. If your smallest debt also happens to carry your highest rate — common when the small debts are overdrafts or store cards — both strategies attack in the same order and produce identical results. That’s not an error; it means the choice comes down to what keeps you motivated.
The assumptions — read these before relying on any number
- Interest is charged monthly, at your annual rate ÷ 12. Real lenders mostly accrue interest daily, and credit cards have interest-free days on purchases — so real charges will differ somewhat.
- Your minimum payments are fixed dollar amounts. Real credit card minimums are usually a percentage of the balance, shrinking as you pay down. Entering today’s minimum as a fixed amount means the tool assumes you keep paying that much — which pays debt off faster than a shrinking percentage-based minimum would.
- Your budget must cover all the minimums. The comparison assumes every debt gets at least its minimum every month. If your budget is below your combined minimums, the simulation will still run, but the result isn’t a plan — in the real world, short-paying a minimum means default fees, penalty interest and credit-file damage, none of which are modelled. If that’s your situation, please talk to us or to MoneyTalks — there are real options.
- No fees or penalties are included. No account fees, late fees, default interest or early-repayment charges.
- Nothing changes for the whole payoff. Rates stay constant, your budget stays constant, every payment is made on time, and no new debt is added.
- Balances are today’s balances. Pending interest or charges not yet on your statement aren’t included.
What this calculator is — and isn’t
This tool does arithmetic on the numbers you give it. It doesn’t recommend a strategy, a lender, a consolidation loan or any other product, and it doesn’t know your circumstances — so it isn’t financial advice under the Financial Markets Conduct Act 2013. In particular, “Avalanche wins on paper” is a mathematical statement, not a recommendation: the best strategy is the one you’ll actually sustain, and for some people the motivation of early wins is worth real money.
If you’d like help building an actual repayment plan — including options the calculator can’t see, like consolidation, refinancing or hardship arrangements — book a free chat. And if debt is causing you stress right now, MoneyTalks (0800 345 123) offers free, confidential help from financial mentors.
Sow Financial Limited (FSP1008822) is a licensed financial advice provider. Our public disclosure statement sets out our licence status, how we’re paid, our complaints process, and our dispute resolution scheme.
Calculator methodology last reviewed: July 2026. If we change the method or assumptions, we’ll update this page.