Debt Avalanche Method

Debt can be overwhelming — and if you’re not interested in debt consolidation, paying it off might feel like an uphill battle. But with the right plan, you can regain control and make progress toward financial freedom. 

The debt avalanche method is one effective strategy that helps you focus on what matters most, prioritize payments, and build momentum along the way. 

How to use the debt avalanche method 

“Not only does the debt avalanche method help you pay down debt, but it can also help you save a substantial amount of money on interest.”

The debt avalanche method focuses on paying off high-interest debts first. Then, once you’ve repaid your highest-interest debt, you can eliminate the next highest-interest debt, and so on. 

It’s an easy strategy that could help reduce the amount you're paying in interest quickly. Interest can tack on quite a bit of extra money, especially if you have a lengthy term and only make the minimum monthly payments. So, instead, the debt avalanche method helps you knock out some of that interest one debt at a time. 

The debt avalanche method only requires a couple of steps, then it’s just rinse and repeat! 

1. Make a list of all debts 

Whether you use pen and paper, spreadsheet software, or a note-taking app, jot down all your debts. Be sure to include each one’s interest rate, minimum payment, and total balance. 

The debts don’t necessarily have to be in any order just yet. That’s what you’ll do in the next step. For now, make sure you identify and list every debt (pulling your credit report might help). Double-check to ensure you don’t miss anything before moving on. The last thing you want is to realize you forgot an outstanding bill only to get hit with late fees and extra interest. 

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2. Organize your debts from highest to lowest interest rate 

Sort the debts by interest rate in descending order, with the highest interest at the top and the lowest at the bottom. It doesn’t matter if the debt with the highest interest rate also has the lowest balance. With the debt avalanche method, we’re only concerned with interest rates right now. 

Since your debt list from the previous step is probably out of order, it might help to go through it and put numbers next to each debt. Find the highest interest rate and put a number one next to it. Then find the second highest interest rate and put a number two next to it, and so on. 

From here, you can create a new and organized list based on how you numbered the debts. Now everything should be in descending order and ready for the next step. This organization process makes it less overwhelming. 

3. Pay off the highest-interest debt first 

Add up all your monthly minimum payments and figure out how much extra you can budget for debt reduction. 

Let’s say that once your minimum payments are met, you have $150 you can afford to put toward credit card debt each month. All that $150 will go toward the debt with the highest interest rate (plus the original minimum payment). 

Keep making the minimum payments on the other debts, but pay the extra $150 on the high-interest one until you’ve paid it off. Doing this should significantly decrease your owed interest and take a bill off your plate. 

4. Repeat the process until all debts are eliminated 

After paying off the first debt, move on to the one with the next highest interest rate. Repeat the process until you’re debt-free! As you continue paying off each debt on the list, you should gain a little more wiggle room with your finances, which could mean opportunities for saving or splurging on a fun purchase. 

Benefits of the debt avalanche method 

Get out of debt more quickly 

Using any debt repayment strategy can help you pay off debt faster than if you just stick to making minimum payments. The debt avalanche method essentially accelerates your path to debt-free living. 

Save money on interest 

Paying off high-interest debts using the debt avalanche method could save you money in the long run. You can then use the money you save on interest and put it toward other debts, emergency savings, or major purchases. 

Stay organized 

By using the debt avalanche method, you’ll have a clear path to decreasing your debt. All you need to do is check off your debt list as you pay things off. It’ll be such a rewarding moment each time you check off a debt. 

Seeing progress like this can keep you focused, motivated, and organized, which makes you more likely to succeed in your financial goals. 

Debt avalanche vs. debt snowball 

You may have heard of a similarly named debt-reduction strategy called the debt snowball method. The snowball and avalanche debt methods are very different, so you’ll want to choose the one that makes the most sense for your situation.

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The debt snowball method prioritizes smaller balances first, regardless of the interest rates. You’ll make a list similar to the debt avalanche method list but organize it in descending balance order. 

Once you have your list, put any extra money you can toward that debt with the smallest balance. Do this every month until the first debt is paid off, then move on to the next smallest balance. 

By the time you get to the larger debts, you should be able to make larger payments to help pay them down quickly. Plus, paying off smaller debts first can be a big motivator because you see progress sooner. 

But, since the debt snowball method doesn’t account for interest rates, you may end up paying more in interest over time than if you use the debt avalanche method. 

➢RELATED: What Is the Debt Snowball Method?

Is the debt avalanche method right for you? 

Not only does the debt avalanche method help you pay down debt, but it can also help you save a substantial amount of money on interest. You might ask yourself whether that’s more important than paying off a smaller debt faster. 

Compared to the debt snowball method, it takes longer to pay off that first debt with the debt avalanche method. So, if you’re the type of person who needs a feeling of accomplishment to keep going, the debt snowball method might suit you better. 

A little progress is better than none, so if the debt avalanche method sounds like an option worth trying, now is the time to get started!