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The Debt Avalanche – Save Money and Get Rid of Your Debt

Published Jan 14, 20215 min read

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At a glance

The debt avalanche payoff method has you target your debts with the highest interest rates to pay them off first. Once each debt is paid off, you’ll have a larger pool of money to put towards the next, burying all your debts beneath an avalanche.

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The avalanche debt payoff method can help you deal with your debt in a more manageable way. Rather than targeting the smallest balances first like the snowball method, you first focus on the debts with the highest interest rates.

Because you’re prioritizing interest, the avalanche method will save you money compared to the snowball method. But the difference in interest you’d pay may be small, and there are those who might prefer the satisfaction of knocking out the smallest debts first with the snowball method, even though it’ll cost you a little more.

The avalanche method is designed to overwhelm your outstanding balances, knocking them out one by one with the added support of the money from paying off each previous amount. The idea is to crush each balance beneath an ever-growing avalanche of money. It’s one of the most effective, and quickest, ways to become debt-free.

As you begin to clear out your credit card debt, be mindful not to rack up more as you continue to pay off your outstanding balances.

There are strategies you can use to avoid falling into debt in the first place. Take a look. 6 Tips for a Debt-Free Life — Even With Credit Cards

How Does the Debt Avalanche Work?

The first thing to do is find all of your debts and their respective interest rates, and list them in one spot. For credit card accounts, interest rates are expressed as APRs. When you have all of your debts together, reorganize them from highest interest rate to lowest. You’ll target the debts in that order. Just be sure you’re still making all of your required minimum payments as well, for every debt.

Here’s an example of what your first list might look like:

Loan Balance APR (Interest Rate)
Credit Card A $7,000 21.87%
Credit Card B $3,000 23.99%
Credit Card C $800 18.93%
Student Loan $40,000 5%

So, once you have all your debts, put them in order from highest interest rate to lowest:

Loan Balance APR (Interest Rate)
Credit Card B $3,000 23.99%
Credit Card A $7,000 21.87%
Credit Card C $800 18.93%
Student Loan $40,000 5%

Now that everything is in the proper order, follow these steps to pay off your debt:

  1. Make the minimum monthly payments on all of your debts.
  2. Take any extra money you have left after all of your bills and expenses have been taken care of and put it all towards paying down Credit Card B (the highest interest rate).
  3. Once you’ve paid Credit Card B off, take all the money you’ve been putting towards that debt and put it toward the next high-interest debt: Credit Card A.
  4. After Credit Card A has been paid off, put all of your available funds toward Credit Card C.
  5. Finally, once all other debts have been taken care of, put what’s now a far larger payment than the one you began with toward the Student Loan.

As you eliminate your credit card debt, be careful to manage your personal finances so as not to end up in this situation once more. Don’t charge more than you can pay off in full each month, and pay the full statement balance on every bill.

Not only can this technique apply to credit card debt and student loans, but it would also work for medical bills, car loans, or any other outstanding balances you may have that are accruing interest.

Debt consolidation could also be helpful here. It would cut down on the number of credit card balances you have to manage, refinancing them into a single debt with a lower interest rate. After consolidating, reorder the debts once more for the avalanche method.

The avalanche method gets its name from the slow start that becomes a sudden and powerful force. It might take some time before you see any progress because you’re not targeting the lowest balances first, but once things get moving you’ll have more and more money to pay off your remaining debts. That larger sum will quickly wipe away the remaining balances, like an avalanche.

What Are the Advantages & Disadvantages of the Debt Avalanche Method?

Perhaps the greatest advantage of the avalanche method over other debt repayment plans is that it’ll save you money. Because you’re targeting the highest-interest debt first, you’ll pay less money in interest charges. It’ll also be extremely satisfying to watch your balances decrease at faster rates as you pay off each debt.

Another advantage is the positive impact it’ll have on your credit scores. As your debts begin to drop, you’ll be using less of your total credit, and therefore will lower your credit utilization. With lower credit utilization, your credit scores should typically begin to improve, all other things being equal.

A disadvantage of this method might be the challenge of staying motivated. With the snowball method, you’ll knock out individual debts at a faster rate because you’re targeting the lowest balances first. That string of victories makes it a little easier to keep going. But with the avalanche method, because of the interest prioritization, it may take a little longer to actually see the results, despite how effective it actually is.

The Snowball Method

The debt snowball method, as previously mentioned, works a bit differently than its frosty counterpart. You’ll be targeting the smallest debts first rather than the balances with the highest interest rates, while making minimum payments on all your other debts.

So, using the same examples above, here’s what your debt prioritization would look like:

Loan Balance APR (Interest Rate)
Credit Card C $800 18.93%
Credit Card B $3,000 23.99%
Credit Card A $7,000 21.87%
Student Loan $40,000 5%

The snowball method relies on quick wins that pick up speed. As you finish paying off each debt, you take the funds you now have available and put them towards the next. Like the method’s namesake, your progress builds slowly and steadily, eventually accumulating into a big monthly payment for your final debts.

This method can still help, but you’ll end up paying more money over time from interest charges compared to the avalanche method.

The snowball method could lead to faster improvement in your credit scores, though. Because you’ll be eliminating the smallest debts first, you’ll pay off full balances faster. Having fewer outstanding balances can reflect favorably on your credit scores. With the avalanche method, it may take more time to pay off full balances because you don’t necessarily start with the smallest first.

However, you’d see the same improvement to your credit scores from the avalanche method, just not as quickly, and you’d save more money. Because of this, we recommend choosing the avalanche method over the snowball.

The Verdict

While it might be tempting to apply the snowball method to your debts, we don’t recommend doing so. Coming from someone who is more inclined to go for instant gratification, the string of quick victories and faster improvement of your credit scores certainly sounds appealing.

However, the money you’ll save on interest payments by utilizing the avalanche method sounds far more attractive. And you’ll see the same improvement in your scores, you’ll just need to have a little more patience.

Once you’ve wiped away the debt, remember to practice responsible spending habits to avoid falling back into it.

It’s also important to note the avalanche and the snowball methods aren’t your only two choices. There are other tools you can use to lighten the load of your debt. These include:

It’s a good idea to look at all your options before settling on one. Making informed decisions is one of the best things you can do for your finances. And while many people struggle with debt, it is something you can overcome.

Check out our full guide on becoming debt-free. How to Pay Off Debt: 6 Strategies That Work
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Written by

Evan Zimmer

Evan graduated from SUNY Oswego with a degree in journalism and creative writing. In his professional writing career, he strives for precision and comprehension in his work. He’s written news articles, blog posts, and copy, working across a slew of different mediums. With in-depth research and great care for accuracy and detail, he now works to bring you the most up-to-date credit information.

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