The basic idea
If you have several debts, you may be making a required payment on each one while also having some additional amount available for payoff. A payoff method determines which balance receives that extra amount first.
The Consumer Financial Protection Bureau describes two common approaches: the highest-interest-rate method and the snowball method. The first targets the debt with the highest rate; the second targets the smallest balance.
How the snowball method works
Under the snowball method, active debts are ordered from the smallest balance to the largest. Required payments continue on the other debts, while extra payment capacity goes toward the smallest balance. When that balance reaches zero, the payment capacity that had been going to it can be redirected to the next-smallest balance.
The defining feature is therefore balance priority. APR does not determine which debt is targeted first.
How the avalanche method works
Under the avalanche method, active debts are ordered from the highest APR to the lowest. Required payments continue on the other debts, while extra payment capacity goes toward the highest-rate debt. When that balance is paid, the extra amount moves to the next-highest-rate debt.
Because higher-rate balances generally create more interest cost per dollar carried, the avalanche approach can produce lower estimated interest in many scenarios. The exact result depends on the balances, rates and payments involved.
What can make the results look similar?
The two methods can produce very similar timelines when your debts have similar balances and APRs, or when your monthly payment is large enough that all balances disappear relatively quickly. The difference can become larger when a high-rate balance is also one of the larger debts.
What does not change between the methods?
Neither method changes the contractual terms of your debt. Your APR, required payment, due date and lender rules remain whatever your creditor specifies. A payoff strategy is simply a way to organize additional payments across multiple balances.
It is also possible for the mathematically lower-interest result and the personally easier-to-follow approach to be different. That is why a neutral comparison is more useful than treating one method as universally “best.”
How to compare them
Start with the same inputs for both scenarios: current balances, APRs, minimum payments and the extra monthly amount you want to model. Then compare the estimated payoff time and estimated interest. Keeping the inputs identical isolates the effect of the payoff order itself.