Explain the snowball and avalanche debt payoff methods.

• A. Snowball pays smallest balance first for motivation; avalanche pays highest interest first for cost savings.
• B. Avalanche pays smallest balance first for motivation; Snowball pays highest interest first for cost savings.
• C. Snowball uses minimum payments; Avalanche uses extra payments.
• D. Snowball pays highest interest first; Avalanche pays smallest balance first.

Answer: (A)

Snowball and avalanche are two debt-payoff approaches that use extra payments to speed up getting out of debt. The key idea behind the snowball method is to pay off the smallest balance first. By eliminating a small debt quickly, you gain a sense of progress and motivation to continue, and once that debt is cleared, you roll its required payment into the next smallest balance, creating rising momentum like a rolling snowball.

The avalanche method, on the other hand, targets the debt with the highest interest rate first. By paying down the most expensive debt first, you minimize the total interest you pay over time, which usually reduces the overall cost and speeds up the true payoff date of all debts.

Both methods start with making at least minimum payments on all debts, and you apply any extra money to the chosen target. As each debt is paid off, its payment amount is added to the next target’s payment, accelerating the payoff process in whichever method you choose. The described distinction—smallest balance first for motivation, highest interest first for cost savings—is what makes the correct answer fit the two strategies. Other descriptions that swap the priorities or imply one method uses only minimums don’t reflect how these methods actually operate.