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What Is the Debt Avalanche Method and How Does It Work?

Updated
Lyle Daly
Robin Hartill, CFP
By: Lyle Daly and Robin Hartill, CFP

Our Personal Finance Experts

Eric McWhinnie
Check IconFact Checked Eric McWhinnie
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Knowing where to start with a debt payoff plan can sometimes be confusing, but it doesn't have to be. In this guide, you'll learn about the debt avalanche method, how it works, its pros and cons, and how to decide whether to use it.

What is the debt avalanche method?

The debt avalanche method is when you pay off your debts with the highest interest rates first. To follow this strategy, make minimum payments on all your accounts, then put as much money as possible toward the one with the highest interest rate. Once you've paid off the balance with the highest interest rate, you'll put the money you were paying toward that debt to your debt with the next-highest interest rate.

How to use the debt avalanche method

Here's how to use the debt avalanche method for paying off debt:

  1. Make a list of all your debts, including their balances, interest rates, and minimum payment amounts.
  2. Review your budget to find out how much you can put toward debt each month.
  3. Pay the minimum on every account except the one with the highest interest rate.
  4. On the account with the highest interest rate, pay as much as your budget allows.
  5. After you pay off the debt with the highest interest rate, move on to the next highest.

The debt avalanche method is most often used with high-interest debt. It's especially helpful for getting out of credit card debt. Because credit cards tend to have high interest rates and low minimum payment amounts, paying them off can be difficult. If you commit to the debt avalanche method, you can pay off credit card debt more quickly.

Debt repayment methods usually aren't too complicated, and the debt avalanche is no exception. The key to making it work is your budget.

No matter which method you use, success depends on limiting spending and putting as much as possible toward debt payments. If you're trying to free up more money or figure out a solid repayment plan, debt payoff apps can help.

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Debt avalanche example

Suppose you have the following debts that you're seeking to pay off:

Debt Balance APR Minimum monthly payment
Credit Card No. 1 $4,000 19.99% $100
Credit Card No. 2 $1,800 16.99% $50
Credit Card No. 3 $6,000 15.99% $125
Personal Loan $5,000 9.99% $110
Auto Loan $10,000 3.99% $185

Total debt: $26,800

Total minimum monthly payments: $570

If you had an additional $500 to apply toward your debt and opted for the debt avalanche, you'd focus on Credit Card No. 1 because it has the highest annual percentage rate (APR). You'd pay $600 a month toward Credit Card No. 1 (the $100 minimum payment, plus the extra $500), while paying the minimums on everything else.

Once you paid off Credit Card No. 1, you'd focus your efforts on Credit Card No. 2, which has the next-highest interest rate. You'd make $650 monthly payments (the $600 you were paying toward Credit Card No. 1 plus the $50 minimum on Credit Card No. 2). You'd continue until you wipe out your debt.

Pros and cons of the debt avalanche method

Here are the pros and cons of the debt avalanche method:

Pros Cons
Saves the most money on interest Can be difficult to maintain motivation
Helps you become debt free the fastest Takes longer to reduce the number of accounts with outstanding balances
Provides a structured approach to paying off debt Requires that you have extra money to put toward debt

The biggest advantages of the debt avalanche method are the savings and speed it offers. By tackling your highest-interest debts first, you pay off debt the fastest, while saving as much as possible on interest.

In addition, the debt avalanche gives you a simple, easy-to-follow payment structure. If you've had trouble coming up with a plan of your own, the debt avalanche is a great solution.

There are also some potential drawbacks of the debt avalanche. It could take a while to pay off an account in full, and that can be discouraging. If you're juggling several accounts and having trouble managing payments on all of them, it may be better to start with debt consolidation over the debt avalanche.

Although the debt avalanche works well when you have disposable income, it's not an option if you're strapped for cash. You need to have enough to make all your minimum payments with some funds left over.

Alternatives to the debt avalanche

The main alternative to the debt avalanche is the debt snowball method. It's a similar strategy, except it involves paying off the debts with the smallest balances first. With the debt snowball, you make minimum payments on all your debts, and then put extra money toward the debt with the smallest balance.

While the debt snowball doesn't save you as much on interest, it's popular because it helps people stay motivated. By focusing on debts with the smallest balances, you pay off accounts sooner. Each time you pay off an account, it's a small win that encourages you to keep going.

Depending on your financial situation, you may find that neither the debt avalanche nor the debt snowball are a good fit. For example, if minimum payments are the most you can do, then neither of these strategies will work. Here are a few options that could:

  • Debt consolidation: If you apply for a personal loan, you can use it to consolidate your debt -- you pay off all your debts with the loan, then make only your loan payments going forward. Not only does this cut down on the number of payments, but the best debt consolidation loans can get you a lower interest rate and monthly payment amount.
  • Balance transfer: A balance transfer is when you transfer a credit card balance from one card to another. Top balance transfer credit cards offer a 0% intro APR, so they give you time to pay down debt interest free.
  • Credit counseling: There are nonprofit credit counseling agencies that work with you to help you pay off debt. They can go over your budget with you, come up with a payment plan, and even negotiate with creditors to get you a monthly payment amount you can afford.

Keep in mind that some of your debt repayment options depend on your credit score. Balance transfer credit cards usually require good credit (a FICO® Score of 670 or higher). Lenders can be more flexible with debt consolidation loans, but they use your credit score as one factor in setting your loan's interest rate.

LEARN MORE: Debt Snowball vs. Debt Avalanche

Is the debt avalanche method right for you?

The debt avalanche method is a good choice if you're confident you can stick with it. By targeting accounts with the highest interest rates first, you save more money. That makes the debt avalanche one of the most effective ways to eliminate debt.

If you have a high credit score, you may want to consider a balance transfer credit card or a debt consolidation loan first. Those allow you to reduce the interest rate on your debt. But the debt avalanche is better if you're currently building credit or if you just don't want to apply for another credit card or loan.

See The Ascent's debt snowball calculator to see which debts you should pay off first.

FAQs

  • To repay debt using the debt avalanche method, focus on paying off your debt with the highest interest rate first. Make the minimum required payment on your other debts to stay current, and put all your extra money on your debt with the highest interest rate.

    Once that debt is paid off, repeat the process with the next debt that has the highest interest rate, and so on.

  • Here are the advantages of the debt avalanche method compared to other payment plans:

    • It saves you the most money on interest charges.
    • It allows you to pay off your debt as quickly as possible.
    • It gives you a straightforward strategy you can use to pay off any type of debt.
  • The debt avalanche strategy is a good idea when you have multiple high-interest debts, such as credit card debt. It is a perfect fit if your priority is reducing interest charges as much as possible, and if you know you can stay disciplined about making your payments.

  • Neither method is necessarily better. Though the debt avalanche saves you more money, many people feel more motivated by quickly reducing the number of bills they have to pay. The best strategy is the one that you can stick with over time.

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