How to Use the Debt Avalanche Method

You may be able to save time and money with the debt avalanche method. This means paying off your debts with the highest interest rate first.

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Written by Bev O'Shea
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How to Use Debt Avalanche

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Knowing how to pay off your debt isn't always easy, but there are some strategies that can help. Two common methods are the debt snowball and the debt avalanche.

Debt avalanche vs. debt snowball

The debt avalanche method targets debts with the highest interest rates first. This route may help you save time and interest over your debt payoff journey.

The debt snowball method, in contrast, prioritizes your smallest debt first no matter the interest rate. Each time the smallest one is eliminated, you move to the next smallest. If you need short-term victories to inspire you, you’re a debt snowball candidate. If you tend to be analytical and patient, the debt avalanche method may appeal to you.

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What is an example of the debt avalanche strategy?

If you can’t pay off your unsecured debts, such as credit cards and personal loans, in five years or less, you may need to investigate options for debt relief.

But oftentimes, people can address their debt by creating a budget and sticking to it, which ideally frees up cash to implement an avalanche debt-payoff strategy. Once you’ve got a handle on what you owe and where you spend, it’s time to start on the avalanche.

Add up all the minimums you must pay on your debt (excluding your mortgage) — ordered from the highest interest rates to lowest. Next, make a budget to see how much more you can put toward your debt each month to accelerate your payoff.

Here's an example: Let’s say you have a hospital bill for $300, and the hospital is allowing you to pay itpay on it interest-free. You also have a credit card balance of $2,500 at 22.9% interest and another balance of $5,000 at 15.9%.

That $2,500 credit card balance becomes your top priority, because it carries the highest interest rate. If you can put an extra $200 over your total minimums to pay off debt, it will go to that one until it is paid off. Then you add that debt’s minimum to the $200 extra, and put the total toward the bill with the second-highest interest rate.

Continue knocking off debts and rolling their minimums into the extra debt payment amount until all debts are repaid. If a promotional interest rate ends, you may have to reorder your debts to keep your focus on the one with the highest rate.

If you happen across "extra" money or take on a side hustle, you can supplement either payoff strategy by using the additional funds to further chip away at debts (the “snowflake” method).

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Is the debt avalanche method for you?

The debt avalanche method takes some patience — especially if your highest-interest debt is also the largest.

You can build a spreadsheet to track your progress, which gives you the emotional payoff of watching your debt shrink, too.

That’s important. If you grow weary of the sacrifices you're making to pay off debt, you may decide it’s not worth the effort and quit. If you do that, all the money that you were going to save won’t matter.

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