Debt Snowball or Avalanche? An AMD 980,000 Worked Example

Varkonline

A young adult compares snowball and highest-interest repayment methods for three debts using a calculator and calendar

Summary. After making every required minimum payment, extra money can be directed either to the smallest balance or to the debt with the highest interest rate. In this simplified AMD 980,000 example, both methods finish in month 15, but starting with the highest rate reduces interest by about AMD 9,379.

Publication date: 10 November 2026. Data checked: 10 November 2026.

Two methods, one non-negotiable rule

The U.S. Consumer Financial Protection Bureau highlights two basic debt-reduction strategies. The snowball method sends extra money to the smallest debt, producing an early visible win. The highest-interest-rate, or avalanche, method attacks the costliest debt first and will generally reduce long-run interest. Under either method, all required minimum payments on the other debts continue.

The worked example

  • Debt A: AMD 120,000 at 12% a year; minimum payment AMD 8,000.
  • Debt B: AMD 260,000 at 28% a year; minimum payment AMD 14,000.
  • Debt C: AMD 600,000 at 18% a year; minimum payment AMD 20,000.
  • Total monthly budget: AMD 75,000. After AMD 42,000 of minimums, AMD 33,000 remains for the target debt.

Interest is calculated monthly on the outstanding balance by dividing the annual rate by 12. We assume unchanged rates and budget, no new borrowing, no late charges or fees, and that each freed payment rolls fully to the next debt. Real contracts may calculate interest daily, include other charges and apply different rounding, so this is an educational scenario, not a personalised offer.

The result

Snowball: A → B → C. Debt A disappears in month 3, B in month 8 and C in month 15. Approximate interest is AMD 131,693 and total repayment is AMD 1,111,693.

Avalanche: B → C → A. Debt B disappears in month 6 and all debt is gone in month 15. Approximate interest is AMD 122,314 and total repayment is AMD 1,102,314.

The gap: with the same monthly budget and the same 15-month horizon, the avalanche saves about AMD 9,379. The snowball’s advantage is motivational: the first account is closed in month 3, while the avalanche’s first fully repaid debt arrives in month 6.

How to apply it in six steps

  1. List each current balance, annual percentage rate, required minimum and due date. Use the contract or latest statement, not memory.
  2. Set a monthly amount you can sustain without borrowing again to cover food, housing, utilities or a small emergency buffer.
  3. Automate or schedule every minimum payment. One late payment can undermine both the calculation and your credit record.
  4. Choose the target: smallest balance for a quick visible win, or highest rate to minimise interest.
  5. When the target is cleared, roll its entire payment into the next debt. Keep the total monthly budget unchanged.
  6. After every extra payment, confirm that it was recorded as early principal repayment and request an updated schedule.

An important Armenian contract detail

The Central Bank of Armenia’s business-conduct rules provide that, for consumer credit, an early payment should generally reduce principal and proportionately reduce creditor-income charges unless the consumer instructs otherwise. In practice, label the payment as early repayment, inspect the statement and obtain a revised schedule; merely leaving money in an account may not produce the same result. Review the specific contract first for mortgages and other specialised credit.

When neither method is enough

If a debt is already overdue, penalties are growing or even the minimums do not fit your budget, snowball versus avalanche is not the first decision. Contact the creditor early and ask in writing about a revised schedule, restructuring or other available options. Replacing old debt with a new high-cost loan is not progress unless the total cost and timeline genuinely improve.

What this means for the reader

If you can keep the same monthly budget, the highest-rate method is usually the mathematical winner. But a plan abandoned halfway is worse than a slightly more expensive plan you can sustain. A hybrid is also possible: clear one very small balance, then switch to the highest rate.

Your next step

Today, make a four-column list: balance, rate, minimum and due date. Add a realistic extra payment to the sum of the minimums and select the first target. In one month, compare actual balances and interest charged, not just how the plan felt.

Sources

This article is for financial education and is not personalised financial, legal or credit advice.