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The debt avalanche method is one of the most popular methods of paying off outstanding debt.
Unlike the debt snowball method, which involves paying off your smallest debt first, with the debt avalanche strategy, you pay off the debt with the highest interest rate first and work downward.
One of the best things about the debt avalanche method is that it can save you a ton of money on interest charges. But because you don’t see as many small victories upfront as you do with the debt snowball strategy, it’s not a great method if you like instant gratification or lack discipline. (No judgment!)
In this guide, we’ll cover some of the basics of the debt avalanche method so you can decide if it’s the right debt repayment model for you.
What Is the Debt Avalanche Strategy?
The debt avalanche strategy is a debt repayment plan by which you pay off your highest debt first—regardless of the size of the balance. It’s also known as debt stacking.
Once you’ve got that credit card, personal loan, student loan, etc., paid off, you move onto the debt with the next highest interest rate. And you continue this way until you are debt-free (and solemnly vow never to rack up credit card debt ever again!).
The biggest benefit of the debt avalanche method is that it saves you money by eliminating your costliest interest payments first.
Debt Avalanche vs. Debt Snowball
The debt avalanche method sounds similar to the debt snowball method. After all, they both invoke snow.
But that’s about where the similarities end.
The debt snowball method was invented by Dave Ramsey (that guy we love to hate). It involves paying off your debts in order of smallest balance to largest balance.
The idea is that the good vibes you’ll receive from paying off smaller debts quickly will power you through paying all of what you owe.
I enjoy good vibes as much as the next hippie. (Hey, I wear tie-dye Crocs. Don’t judge.) But I also enjoy not wasting my money on interest payments. So I’d rather tackle debt with high interest rates first.
That said, there are some folks who need the rush that comes with paying off a debt 100% to help them stick to their debt repayment plan. I can respect that.
How to Use the Debt Avalanche Strategy
Before tackling the debt avalanche strategy, make sure you have a solid budget in place.
Once you have created a budget—and there are a slew of apps that can help you do this—you can see what money you have leftover after paying off your necessary expenses like rent, food, utilities, insurance, transportation, etc. That’s the money you want to devote to paying off your debt.
Also, here’s a side note: If you have a huge amount of credit card or personal loan debt and feel in over your head, you might want to check out some debt relief options. There are professionals who can help you tackle the problem without driving yourself crazy.
It would also be helpful to set up an emergency fund to cover any disasters, so you won’t need to rack up more credit card debt.
Back to the avalanche . . . are you ready?
1. Learn Your Rates
First off, make sure to pay the minimums every month for all of your debt. You can do this simply by setting up auto pay on your accounts online. (Just be sure to update your payment method if you have a bank account change—take it from me.)
Once you have your minimum payments set up, it’s time to look at your interest rates.
Take a sheet of paper and write down all of your debts—your credit cards, a personal loan, a student loan, etc.—in one column. Then write down how much you’re paying in interest in another column. Usually, this is easy to find online or in your paper statement. It will probably be listed as APR, or annual percentage rate.
Now, sometimes a credit card issuer can raise your interest rate once you’ve had an account for longer than a year. However, by law, the credit card company must send you a written notice at least 45 days in advance of the new rate taking effect. So keep that in mind when you’re listing your rates!
2. Order Your Rates
Now make a list of your debt by highest to lowest interest rate. So if Card A charges 24.9%, Card B charges 19.5%, your student loan charges 5.9%, and your car loan charges 8%, you’d list your debt in this order:
- Card A
- Card B
- Car loan
- Student loan
And that’s the order in which you’d pay off your debt.
Check to see if any of your cards have a promotional rate period after which the rate will go up. If they do, you might need to reorder your debt when that time comes.
3. Make Regular Payments
Every month, make sure that you make your minimum payments for every single debt. Missing a payment can pile on fees and harm your credit score. And that’s a one-way ticket to getting an even higher interest rate on new accounts.
After paying your minimums, take the amount of money you have budgeted for your debt repayment and put it all in your highest interest debt (in our example, Card A).
Once you have paid off Card A in its entirety, take your budgeted money plus the minimum payment amount you were spending on Card A and start paying off Card B.
Once Card B is paid off, you take your budgeted amount, plus your minimums for Card A and Card B and pay off the car loan. And continue on until you pay off all your debt.
Here’s a pro tip: Sometimes interest charges on credit cards might lag your statements. So once you’ve paid off a credit card balance, you might still owe an interest charge in the next billing cycle.
When I paid off all my credit cards, I called each credit card customer service line a week after paying my balances and asked if I owed any extra interest. If I did, I paid it over the phone so I would never have to worry about that credit card again.
Also, once you’ve paid off a credit card, check to see if there’s an annual fee. If there is an annual fee, cancel it. Ain’t nobody got time for that.
Learn More:
Frequently Asked Questions (FAQs)
What Are The Pros and Cons of the Debt Avalanche Method?
Although I think the advantages of the debt avalanche strategy outweigh the disadvantages, you may disagree. So let’s compare the pros and cons.
Pro: The Debt Avalanche Strategy Saves Money
This is the clincher for me. Paying interest on debt is like throwing money out the window. And credit card debt is among the worst.
According to LendingTree, the average APR for all new credit card offers is 19.62% (as of March 2022). But hotel and airline credit cards can go up to more than 24%.
That means, every year, roughly one-fifth to one-quarter of your credit card principal is getting tacked onto your account. I don’t know about you, but I think that’s crazy. If you have high revolving balances, it can add up into the thousands of dollars.
By using the debt avalanche method (instead of the debt snowball system), you’ll be paying down those pesky interest charges first . . . and not racking up any more interest.
Pro: The Debt Avalanche Strategy Saves Time
Because every day interest gets added to what you owe on your credit card, it takes a helluva long time to pay off. By using the debt avalanche strategy, you can shave years off how long you’d be making payments if you stuck to the minimums.
Con: The Debt Avalanche Strategy Requires Discipline and Commitment
Although the debt avalanche method can help you get your debt paid off faster than some other methods (sorry, Dave Ramsey), it does require you to stick with it.
You have to totally commit yourself to this method, no matter what comes up. If you’re faced with a sudden expense (a car repair, a vet bill, a new pair of limited-edition Crocs), you may be tempted to say screw it and just pay the minimums on all your accounts that month.
And that, my friend, is a slippery slope. Once you stop making your extra payment toward debt payoff, you’ll be tempted to do it again and again . . . until your plan goes totally out the window. I’ve been there.
That’s why it’s important to consider that emergency fund.
For Whom Is the Debt Avalanche Method Best?
The debt avalanche of paying off your debt may be my personal favorite debt repayment strategy, but it’s not for everyone.
If you don’t have the discipline to stick to the plan, you can easily become discouraged and fail.
Also, all debt repayment methods are not ideal if you aren’t earning enough money to cover your daily living expenses. If this sounds like you, consider increasing your income with a side hustle or find a better-paying job before attempting to pay off your debt.
However, if you feel like you’re drowning in out-of-control debt, you don’t have to go it alone.
Remember in The Lord of the Rings when Sam told Frodo to “Share the load”?
It’s worth calling up a debt counselor who can help you set up a repayment plan, a debt consolidation loan or even help with debt reduction so you don’t go crazy.
The Bottom Line
Whether you choose to use the debt avalanche method or the debt snowball method is ultimately up to you. The important part is that you’ve made the commitment to tackle your debt once and for all.
While the avalanche method will save you money in the end, that doesn’t matter if you give up all hope of the process.
So, consider your options, pick a debt repayment method, and stick to it. You got this!