Which statement correctly describes the debt avalanche and debt snowball methods?

• A. Avalanche pays smallest balances first; snowball pays highest-interest first
• B. Avalanche pays highest-interest debts first; snowball pays smallest balances first
• C. Snowball pays smallest balances first; avalanche pays highest-interest first
• D. Avalanche pays highest-interest debts first; snowball pays smallest balances first

Answer: (B)

This is about how people choose to apply extra money when paying off multiple debts. The avalanche method targets reducing the most expensive debt first by paying off the highest-interest balance before the others. By zeroing in on the debt that costs you the most in interest, you minimize total interest paid and shorten the overall time to become debt-free, assuming you continue making minimum payments on the rest.

The snowball method, on the other hand, focuses on the smallest balance first. You rapidly eliminate the debt with the smallest amount owed, then move that freed-up payment to the next smallest, creating quick wins that can boost motivation and consistency, even if it means paying a bit more in total interest over time.

So the statement that describes both approaches accurately is that the avalanche pays highest-interest debts first, while the snowball pays smallest balances first. This captures the fundamental difference in how each method prioritizes debts.