How to Use the Debt Avalanche Method to Pay Off Debt
The debt avalanche method may save you time and money by targeting the debt with the highest interest rate first.
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For Americans with a goal to pay off debt this year, 81% say there are barriers in the way, including increased expenses (43%), high interest rates (26%) and being too overwhelmed by the amount of debt they have (20%), according to a new NerdWallet survey of over 2,000 adults, conducted online by The Harris Poll.
Knowing how to pay off your debt isn't always easy, but some strategies can help. One common method is the debt avalanche.
The debt avalanche involves paying off the debt account with the highest interest rate first. We’ll explore the pros and cons of the debt avalanche method as well as how it compares to another popular method — the debt snowball.
We also sifted through Reddit forums to get a pulse check on how users feel about debt payoff strategies. We used an AI tool to help analyze the feedback and then summarized insight. People post anonymously, so we cannot confirm their individual experiences or circumstances.
What is the debt avalanche method?
The debt avalanche method targets your debt with the highest interest rate first. This route may help you save on accrued interest over your debt payoff journey. But it can take a while to knock out the first debt. If you tend to be analytical and patient, the debt avalanche method may appeal to you.
Pros and cons of the debt avalanche from Reddit users:
Saves more money on interest vs. the debt snowball.
May lead to faster total debt payoff.
May be harder to stick with, psychologically.
May not be suited for people with less discipline.
» Learn about more ways to pay off debt
Debt avalanche vs. debt snowball
The debt snowball method is another way to manage multiple debts. In contrast to the debt avalanche, the debt snowball 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 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).
Pros and cons of the debt snowball from Reddit users:
Provides quick wins.
Builds confidence in your ability to pay off larger debts.
Pay more interest overall compared to debt avalanche.
May take longer to eliminate debt.
How does the debt avalanche method work?
To use the debt avalanche, follow these steps:
Add up all the minimums you must pay on your debt (excluding your mortgage), ordered from highest interest rate to lowest.
Make a budget to see how much more than the minimums you can put toward your debt each month to accelerate your payoff.
Put that amount toward your account with the highest interest rate each month until you wipe out that debt.
Repeat the process with the debt carrying the next-highest interest rate.
Each time you pay off a balance, add whatever you were paying toward that debt to the amount you’re throwing at the next debt on your list.
If a promotional interest rate ends, you may have to reorder your debts to keep your focus on the one with the highest rate.
» Learn how to budget your money
Debt avalanche example
Let’s say you have the following debts:
A medical bill for $1,500 at no interest.
A credit card balance of $2,500 at 22.9% interest.
A credit card balance of $5,000 at 15.9%.
What you pay each month: The minimum on all balances.
Where you put any extra cash first: The $2,500 credit card at 22.9% interest.
What you’d pay off last: The $1,500 medical bill at 0% interest.
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When is the debt avalanche method a good fit?
The debt avalanche method takes some patience — especially if your highest-interest debt also has the largest balance. But if you’re determined to get out of debt while spending the least amount possible on interest payments, sticking with this strategy can pay off.
You can build a spreadsheet to track your progress, which gives you the emotional payoff of watching your debt shrink, too. It's important to stay motivated. 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.
The debt snowball method might be a better alternative if starting with a bigger debt seems too daunting.
» Stay on top of your debt with a debt tracker
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 instead.
