By BillCut
Last updated: 6 November 2026
For a high interest loan payoff order, the usual answer is simple: pay every minimum on time, then send extra money to the loan with the highest interest rate first. This is called the avalanche method. The other common method, called snowball, clears the smallest balance first. This page shows both on one illustrative example, computed with Python, and tells you what to check before you prepay.
What is the avalanche method?
You list loans from highest rate to lowest. You pay the minimum on all of them and put every spare rupee on the top one. When it is cleared, its payment rolls into the next. This usually reduces total interest the most, because the costliest debt shrinks first.
What is the snowball method?
You list loans from smallest balance to largest and pay extra on the smallest first. You clear accounts sooner, and some people find the early wins help them stick to the plan. It can cost more in interest if the small loan has a lower rate than a larger one.
Illustrative example: three loans, same extra money
These numbers are illustrative and made up. They are not offers. Assume you can pay Rs 5,000 extra each month, on top of all minimum payments, and that rates and minimum payments stay fixed.
| Debt (illustrative) | Balance | Yearly rate | Minimum per month |
|---|---|---|---|
| Credit card | Rs 60,000 | 42 percent | Rs 3,000 |
| Personal loan | Rs 1,50,000 | 24 percent | Rs 6,000 |
| App loan | Rs 30,000 | 30 percent | Rs 2,500 |
I ran a month by month calculation in Python. Interest is added each month at one twelfth of the yearly rate, minimums are paid on every open loan, and extra money goes to the target loan. When a loan closes, its minimum moves to the target. Total paid each month starts at Rs 16,500.
| Method | Extra goes first to | Months to clear all | Total interest, approx. |
|---|---|---|---|
| Avalanche | Credit card (highest rate) | 23 | Rs 59,840 |
| Snowball | App loan (smallest balance) | 24 | Rs 64,716 |
In this example avalanche costs about Rs 4,900 less in interest and finishes a month sooner. The gap comes from the card, which carries the highest rate. The gap can be small or large with other numbers. If the smallest loan had also been the costliest, both methods would give the same order. Real loans have fees, changing minimums and late charges that this simple model leaves out.
How do you decide your own order?
- List each loan with balance, yearly rate, minimum payment and any charges for closing early.
- Rank by rate. Credit card dues and app loans are often the costliest, but check your own rates.
- Look at charges. Part payment or closing may attract a fee on some loans. Weigh the fee against the interest you save.
- Pick avalanche for the lowest cost, or snowball if you need quick wins. Either beats paying only minimums.
- Never skip a minimum on any loan. A missed payment brings late fees and can hurt your credit report. You can check it at CIBIL.
Should you check prepayment charges first?
Yes. Read the loan agreement and the key facts statement. The RBI has issued directions on pre-payment charges on loans. For loans sanctioned or renewed on or after 1 January 2026, they say there are no pre-payment charges on floating rate loans to individuals for non-business purposes. Fixed rate loans follow the lender’s approved policy, and a charge must be disclosed in the sanction letter and agreement. Older loans may follow older terms, so confirm with your lender in writing. More detail is in our post on early loan prepayment and charges.
What else can lower the cost?
- Ask the lender about a lower rate or a changed tenure.
- Look at moving a costly card balance to a cheaper option. Our post on how card interest grows shows why card dues can climb fast.
- Compare consolidation into one EMI, keeping in mind fees and the tenure you would get. See what to do when personal loan interest is too high.
If you face unfair charges or collection practices, you can raise a complaint on the National Consumer Helpline. For official notices on lending and borrower rights, visit the Reserve Bank of India website.
Check your options with BillCut
How BillCut can help
BillCut is a balance transfer and debt reduction platform. It works with lending partners to help eligible borrowers move high interest dues, such as credit card balances and personal loan EMIs, into one structured EMI. BillCut earns from helping borrowers refinance, so it has an interest in this option. Approval and terms depend on the partner lender.
Frequently asked questions
Which loan should I pay off first?
Usually the one with the highest interest rate, after paying every minimum on time. Your own rates, fees and comfort decide.
What is the avalanche method?
You put extra money on the highest rate loan first, then move to the next highest. It usually lowers total interest the most.
What is the snowball method?
You put extra money on the smallest balance first. It clears accounts sooner and can help you stay motivated, but may cost more interest.
Does the order really change how much I pay?
It can. In the illustrative example on this page, avalanche cost about Rs 4,900 less than snowball. Real results depend on your loans.
Will I pay a charge for closing a loan early?
It depends on the loan. RBI directions say no pre-payment charges on floating rate loans to individuals for non-business purposes, for loans sanctioned or renewed on or after 1 January 2026. Check your agreement for others.
Is it better to pay a lump sum or extra every month?
Either lowers interest if applied to the principal. A lump sum earlier saves more interest. Confirm with your lender how part payments are applied.
Can I consolidate my loans instead?
It is an option for some borrowers. It can simplify payments but does not cancel debt, and approval, rate and fees depend on the lender.
Disclaimer: This page is for general information only. It is not financial, tax or legal advice. All numbers in the example are illustrative, are not offers and leave out fees. Check your loan agreements and speak to a qualified professional before you decide.
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