Debt Avalanche Method: What To Know and How To Start
For the right person, the debt avalanche method could be a win/win. This strategy focuses on paying down your debt with the highest interest rate first. In the long run, you’ll not only pay off what you owe but you’ll save money in interest, too.
The debt avalanche method takes dedication, discipline and patience. However, if you commit, you could dig your way out from under a mountain of bills.
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What is the debt avalanche method?
The main idea behind the debt avalanche method is to save money in interest and get out of debt faster by targeting your debt with the highest interest first.
To do this, you’ll make more than the minimum monthly payment on your debt with the highest APR or interest rate. At the same time, you’ll continue making minimum monthly payments on everything else you owe.
Once you’ve paid your highest-interest debt, you’ll move on to the bill with the second-highest interest rate. If you have two bills with the same interest rates, you’ll focus on the one with the highest balance first. Repeat these steps until you’re debt-free.
How to start the debt avalanche method
1. Gather your bills
To get started on the debt avalanche method, take a full view of who you owe, how much you owe and how much interest you’re paying. Get all your bills together in one place and highlight your average APRs, minimum monthly payments and total balances.
2. Create a worksheet
Next, create a way to keep track of your payments. You can create a worksheet by following the example below.
When filling in your worksheet, sort your debt from highest to lowest APR or interest rate.
The figures in the “Current payment” column should match what’s shown in your “Minimum monthly payment” column, with the exception of your highest-interest debt. Here, you’ll also include whatever additional payment you’d like to make above the minimum.
| Bill | Average APR or interest rate | Minimum monthly payment | Current payment | Balance |
|---|---|---|---|---|
| Credit card #1 | 22% | $150 | $150 + $100 extra | $5,000 |
| Credit card #2 | 20% | $60 | $60 | $2,000 |
| Personal loan | 15% | $238 | $238 | $10,000 |
| Auto loan | 7% | $600 | $600 | $35,000 |
| Student loan | 6% | $311 | $311 | $28,000 |
3. Make monthly payments
Now that you’ve organized your debt, continue to make minimum monthly payments but put extra cash toward your debt with the highest APR. For example, based on the worksheet above, our hypothetical borrower has committed to pay $100 extra a month toward their highest-interest debt.
Continue down your worksheet, picking off your highest-interest debt until you have nothing left to pay.
Does the debt avalanche actually work?
If you stick to it, the debt avalanche method absolutely works. Pretend your debt burden is the same as shown in our example worksheet. If you were to only make minimum payments, it would take you 9.6 years to wipe the slate clean. Using the debt avalanche method, you’d have your debt paid off in 5.6 years, and save $5,585 in interest.
Pros and cons of the debt avalanche method
The debt avalanche method can save you money on interest, but it does take a lot of willpower.
Depending on the balance of your highest-interest debt, you could be paying it (and your other debts) for a long time before fully paying anything off. So you’ll save money on interest and be out of debt quicker — but it may feel like a slog if you’re chipping away at the same debt over a long period of time.
| Pros | Cons |
|---|---|
Saves money on interest May pay down debt quicker than other repayment strategies Doesn’t require a hard hit to your credit like debt consolidation or a balance transfer credit card | Can be hard to stay motivated if your highest-interest debt is also the one with the highest balance Not an option if you can’t afford at least the minimum amount due on all your bills Only works if you’re able to pay more than the minimum amount due on your highest-interest debt |
Debt avalanche method alternatives
The debt avalanche can be an effective strategy to get out of debt, but it’s not the only one. Every person’s situation is unique — as such, to find success with your debt payoff goal, you should choose the path that makes the most sense for you.
Create a budget
Learning how to budget can be a straightforward way to manage your debt and best of all, it’s free. However, a budget is likely only the first step to a debt-free lifestyle.
Debt snowball method
The debt snowball method is similar to the debt avalanche method, but with one major difference. Rather than focusing on your highest interest debt, you target your smallest debt with the lowest balance. Once that’s paid off, you move on to the debt with the next-smallest balance and so on.
Psychologically speaking, when comparing debt avalanche vs. debt snowball, many find debt snowball easier to stick to. By its very nature, debt snowball comes with the “easy wins” of paying off your low-balance debt in total, one by one.
Debt consolidation
A debt consolidation loan is a personal loan you use to pay off outstanding debt. These could be best for borrowers with lots of high-interest credit cards or those who are struggling to juggle many debt-related bills.
Balance transfer credit card
If you have good enough credit, you might be able to transfer your high-interest credit card debt to a 0% interest balance transfer credit card. As long as you pay it off during the introductory period, you’ll pay nothing in interest. Usually, though, this service comes with a fee (typically 3 to 5% of the balance you transferred).
Debt management plan
If you want to eradicate your debt (and the habits that got you into debt in the first place), a debt management plan may be for you. For a nominal fee, a credit counselor can help put one into place and teach you healthier spending habits.
One thing to keep in mind is that you won’t be able to use your credit cards while you’re working through a debt management plan (which can take three to five years).
Debt relief
Debt relief — also known as debt settlement — isn’t a decision to take lightly. But for overwhelmed borrowers, a debt relief company may be able to negotiate down and consolidate debt to a more manageable level.
Unfortunately, there are a lot of shifty debt relief companies looking to take advantage of those in desperate situations. If debt relief is something you’re interested in, always be sure to vet your company and if the offer is too good to be true, it likely is.
How to decide if the debt avalanche method is right for you
In 2023, LendingTree conducted a study to see which is more effective in paying down debt: the debt avalanche or the debt snowball method.
According to hypothetical scenarios based on average consumers, we found that the debt avalanche can significantly cut down on the amount you pay in interest. Interestingly, though, this savings is nearly identical when compared to the debt snowball method.
All that is to say, any concerted effort to pay down debt is better than nothing. Plus, at least in the case of the debt avalanche and the debt snowball, your results may largely be the same. Ultimately, though, there’s no one-size-fits-all approach to debt management — the most important thing is to find a strategy you can stick with and then follow through.