Debt Payoff Strategies: How to Decide Which Debt to Attack First

The avalanche method: pay the highest interest rate first

The avalanche method directs every spare rand at whichever debt carries the highest interest rate, while paying the minimum on everything else. Once that debt is cleared, you roll its payment into the next-highest-rate debt, and so on. Mathematically, this is the cheapest way to clear multiple debts, because it minimises the total interest charged across all of them.

A personal loan at 24% and a bond at 11% are a clear case: the avalanche method says put extra money toward the personal loan first, every time, because each rand does more work reducing a 24% balance than an 11% one. Run both balances through the Personal Loan Calculator and the Bond Repayment Calculator to see exactly how much interest each extra rand saves on its respective debt.

The snowball method: pay the smallest balance first

The snowball method ignores interest rates and instead targets whichever debt has the smallest remaining balance, regardless of rate. Clearing it fastest gives you a quick win (one fewer account to manage) and that payment then rolls into the next-smallest balance.

Snowball usually costs more in total interest than avalanche, because it ignores rate. Its advantage is behavioural: clearing a full account early is motivating in a way that chipping away at the largest, highest-rate balance for months without a finished account isn't. If you've struggled to stick with a debt plan before, the snowball method's early wins may matter more than the extra interest it costs.

Why extra payments matter more on high-rate debt

Whichever order you pay debts in, the size of the saving from any extra payment depends heavily on the rate of the debt it's applied to. An extra R1,000 a month on a personal loan at 24% saves meaningfully more in interest than the same R1,000 applied to a bond at 11%, because the higher rate means more interest accrues on every rand of remaining balance, every month.

This is also why a personal loan or credit card balance deserves priority over a bond in almost every avalanche scenario. The rate gap between unsecured debt and a home loan is usually large enough that it dominates the decision, even though the bond is typically the bigger balance in absolute terms.

Worked example: avalanche vs snowball on three debts

Say you have three debts: a credit card balance of R8,000 at 21%, a personal loan balance of R35,000 at 19%, and a vehicle finance balance of R60,000 at 13%. Your minimum payments total R3,200 per month, and you have R1,000 extra per month to direct toward debt.

Avalanche: put the R1,000 extra toward the credit card (highest rate) first. It clears in about 7 months. Roll that full payment into the personal loan (which now clears faster) then into the vehicle finance. Estimated total interest paid: roughly R22,000 over the repayment period.

Snowball: put the R1,000 extra toward the credit card (smallest balance) first, same result here because it happens to be both smallest and highest rate. Now toward the personal loan. Then the vehicle finance. In this case the order is identical to avalanche, so the cost is similar. But if the vehicle finance had a smaller balance than the personal loan at a lower rate, snowball would direct you there first, and you'd pay more total interest compared to avalanche.

The practical lesson: always write down rate, balance, and minimum payment for every debt before choosing a strategy. The 'obvious' answer is often avalanche, but the numbers sometimes surprise you.

Putting a plan together

List every debt with its balance, rate, and minimum payment. Decide whether you're optimising purely for the lowest total interest (avalanche) or for the psychological wins of clearing accounts quickly (snowball), there's no wrong answer, only a tradeoff between cost and motivation.

Then use the calculator that matches each debt to see what a given extra payment actually does to it: the Personal Loan Calculator for unsecured loans, and the Bond Repayment Calculator for your home loan. Seeing the real numbers (months saved, interest saved) for your specific debts makes the strategy concrete instead of theoretical.

What to do once the debts are cleared

The instalment you were paying toward the last cleared debt is the most important number in your financial life at that moment. Do not let it dissolve back into general spending. Redirect it immediately, to a savings goal, a retirement contribution top-up, or accelerated bond repayment if the bond remains. The habit of making that payment is already formed; the only question is where it goes next.

Building a liquid emergency fund is usually the first priority after clearing high-interest unsecured debt. Three to six months of essential expenses in a money market account or notice deposit removes the most common reason people take out new debt: an unexpected cost that exceeds available cash. Without the buffer, a single large expense can restart the debt cycle even after months of disciplined payoff.

Once the emergency fund is in place, the same monthly surplus that went toward debt can be redirected toward a tax-free savings account, a retirement annuity contribution, or further bond acceleration, depending on the rates involved and your time horizon. Running the amount through a compound interest calculator over 20 years shows you what the debt-payoff habit is now worth as a wealth-building habit instead.

The mechanics are identical on both sides of the ledger: a regular payment, compounding over time, directed consistently. The skills that made you effective at paying off debt (knowing what each rand actually does, not absorbing surplus into lifestyle) transfer directly to building wealth. The only thing that changes is the direction of travel.