What is the debt snowball method — and how is it different from the avalanche method?

Paying off debts is one of the most important steps in improving your financial life. How you approach it, though, comes down to your personality.

If you're someone who needs a quick win right off the bat to keep moving forward, the snowball method will likely motivate you.. If you want the most bang for your buck, however, the avalanche method is probably the better approach.

Below, CNBC Select breaks down these two popular debt payoff strategies with a sample budget to help you decide which is the right strategy for you.

If you're looking at multiple high-APR bills, you may be wondering how to divvy up payments. With the avalanche method, you would focus on the account with the highest APR first. Any extra money goes toward that bill while you still make minimum payments on your other debts.

Once that debt is cleared, you move on to the next-highest APR account and continue the process until all your accounts are cleared. Many financial experts recommend the avalanche method because it results in less interest over the long term.

The avalanche method in action

Imagine you have four monthly debts — two credit cards, a student loan and an auto loan — and $650 to put toward them each cycle.

With the avalanche method, you'd arrange the accounts from the highest APR to the lowest:

You'd make the minimum payments on the three accounts with lower APRs and apply whatever is left toward the $4,200 credit card with the highest APR:

Using the avalanche method, it would take you 15 months to pay off the first credit card. Once that was done, you'd focus additional money on the other credit card, while still making the minimum payments on the car loan and student loan.

For the best results, budget the same amount each month ($650) until all of the debt is paid off: 

Once the second-highest APR balance is gone, you'd move onto the car loan

In the end, you'll have just one loan remaining:

To understand this method, think of a snowball rolling down a hill. It starts small, but as it gets bigger, it gains momentum. The theory, popularized by Dave Ramsey, is that early wins can encourage consumers to keep plugging away at their debt.

With the snowball method, you'd prioritize paying the smallest bill first, regardless of interest rate.

The snowball method in action

You'ld make the minimum payments on each of the three other loans, then allocate whatever is left to the $1,300 balance.

Sticking to the sample budget and accounts, your first phase would look like this:

Even though those other bills are generating more interest, you could wipe out that first credit card balance in just six months — less than half the time it would take to clear an account with the avalanche method.

Once that card is paid off, you would move to the student loan.

And finally:

If you're motivated by a quick win, then the snowball method is a better choice. But if you crunch the numbers, the avalanche method would save you $153 in interest overall. In addition, you'd pay everything off in 40 months, a month sooner than with the snowball method.

If that's enough to keep you going for the long haul, the avalanche method is probably for you.

Both methods are effective and there's not a huge difference between achieving your goal in 40 versus 41 months. There are no hard-and-fast rules — you can switch methods midstream. The most important thing is creating a plan you know you can stick to. You might be surprised by how quickly you can pay off five-figure debt.

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