When a business is carrying multiple debts — a credit card, an equipment loan, a line of credit — there are two commonly recommended strategies for which to pay off first: avalanche and snowball. They produce different outcomes, and the difference is worth understanding rather than picking one by habit.
How each method works
The avalanche method prioritizes paying extra toward whichever debt carries the highest interest rate first, regardless of balance size, which minimizes total interest paid over time. The snowball method prioritizes paying off the smallest balance first, regardless of rate, on the logic that early wins build momentum to stay consistent with the payoff plan.
Which one actually saves more money
Mathematically, avalanche almost always results in less total interest paid, because it targets the debt that's compounding fastest first. The gap between the two methods grows larger the bigger the interest rate difference is between the business's various debts — a high-rate credit card sitting alongside a low-rate equipment loan is exactly the situation where avalanche's advantage is largest.
The refinance question most owners skip entirely
A lower interest rate on a refinance offer isn't automatically a better deal — closing costs, fees, and any prepayment penalties on the existing loan can offset or exceed the interest savings, particularly if the loan is refinanced again or paid off well before its full term. The number that actually answers whether a refinance is worth it is the break-even point: the month at which cumulative interest savings finally exceed the upfront cost of refinancing.
Why real amortization math matters here
A simplified interest estimate that doesn't account for how amortization actually front-loads interest in early payments can make a refinance look more or less attractive than it really is. Real amortization-based comparison, not a rough estimate, is what makes the break-even number trustworthy enough to act on.