How to use the debt avalanche method to pay down debt

The debt avalanche method focuses on paying off your highest-interest debt first. This approach can help you get you out of debt quickly while saving a ton of money in interest.
7 min read
When you’re juggling multiple debts, paying them off can feel overwhelming. That’s why the most effective debt-repayment strategies tend to focus on breaking the process down into steps that are easy to understand and follow. One such strategy is the debt avalanche method, which offers one of the fastest and most cost-effective ways to get out of debt. With the debt avalanche method, you prioritize paying off your highest-interest debts first so that you can save money and time on your path toward becoming debt-free. This method isn’t for everyone, but its sheer efficiency has made it one of the most popular approaches to becoming financially independent. In this article, we’ll further define the debt avalanche method and show how it can work to help you get out of debt quickly.

What is the debt avalanche method?

Also known as debt stacking, the debt avalanche method prioritizes paying off your debts with the highest interest rates or APRs first. Once the highest-interest debt is paid off, you move to the next-highest-interest debt, and so on until you are debt-free. The idea behind this method is simple. By tackling your most expensive debts first (i.e. your debts with the highest interest rates), you’ll pay less money in interest over time. This allows you to get out of debt faster while saving as much money as possible—not a bad combination, if you ask us. The debt avalanche method is a powerful strategy, but it isn’t for everyone. Focusing on your highest-interest debt first means that you may not experience the satisfaction of crossing fully paid debts off your list until much later down the line. If you need those small wins to motivate you along the way, the debt snowball method may be better for you. With this method, you pay off your smallest debts first—regardless of interest rate—and slowly move up to your larger debts from there.

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How to use the avalanche method to pay off debt

If you follow the debt avalanche method, you could end up paying as little interest as possible on your path to becoming debt-free. Here’s how the avalanche method works in five simple steps.
  1. Make a list of all your debts in order of their interest rates. Remember: your debts should be sorted according to their interest rates, not the amount of money you owe.
  2. Pay the minimum payment for all of your outstanding debts each month. To avoid pesky fees, always pay the minimum payment for every debt, regardless of its interest rate. You may want to set up automatic payments so you don’t have to worry about this step every single month.
  3. Use any extra money left over to pay off the debt with the highest interest on your list. Put as much money as possible toward this debt, but don’t get so overeager that you neglect other essential expenses.
  4. Once your highest interest debt is fully paid off, move on to your debt with the second highest interest rate. Consult your list to determine which debt is next in line to be paid off.
  5. Repeat this process until you’re debt-free. From here, if speed is still a motivating factor for you, you may want to consider ways you can start to save money fast.

Example of the debt avalanche method in action

To understand how the debt avalanche method works, it’s best to see it in action. Say you’ve already paid all your monthly minimum payments. You have €500 left over to allocate toward paying off the following four debts, listed in order of interest rate from highest to lowest:
  • €2,000 in credit card debt with a 24% APR 
  • €1,000 in auto loan debt with a 12% APR 
  • €20,000 in student loan debt with a 3.0% APR interest rate

  • €500 loan from a family member with a 0.0% interest rate

Using the debt avalanche method, all €500 would go toward your debt with the highest interest rate—in this case, your credit card debt. It won’t fully pay off the debt, but it will knock the balance down to €1,500. In subsequent months, you will continue to pay down this balance (as well as the interest it accrues) until it’s fully paid off, then you’ll move onto the auto loan debt and its 12% APR.Now, you may be tempted to use that €500 to fully pay off your family member’s loan, but that would actually cost you money in the long run. Why? Because you aren’t paying any interest on that loan, while you’re paying a whopping 24% APR on the credit card debt! As long as that family member isn’t kicking down your door for money, it’s best to deprioritize that debt for now. Of course, life happens and keeping up relationships matters, but in an ideal world you wouldn’t pay your family member back until after you’ve crossed off all your other debts, including that €20,000 in student loans.

Debt avalanche method: pros and cons

While fantastic for saving the most money in the long run, the debt avalanche method isn’t for everyone. Take a look at the pros and cons of this approach to decide if it’s right for you.

Advantages of using the avalanche method to pay off debt

  • It saves you the most money possible. The debt avalanche method means spending the least amount on interest while you’re paying off your debts. This means you save more money than if you were to use the debt snowball method, for example.
  • It’s great if you’re motivated by optimization. The avalanche method is great for those motivated by following highly optimized plans, even if these plans don’t necessarily provide quick wins.
  • It’s one of the fastest ways to pay off your debts. Adopting the debt avalanche approach often means paying off your debts faster, as you don’t spend extra months paying off additional interest.

Disadvantages of using the avalanche method to pay off debt

  • It requires discipline. In contrast to the debt snowball method, the avalanche method may take you a while to pay off your first debt. This method requires a long-term vision and a belief in the process, which can be difficult when dealing with something as anxiety-inducing as debt.
  • It’s easy to become demotivated. Without quick wins and the constant gratification of seeing debts disappear from your list, it can be easy to become discouraged. This could mean giving up on paying off your debts completely and having to start back at square one.

Debt avalanche vs. debt snowball: which is better for you?

Ultimately, the debt avalanche method may work best for you if you can zoom out and focus on the bigger picture. The prospect of paying the least amount of interest on your debts has to be motivating enough for you to stick with the method, even when progress feels slow. If this sounds unappealing, consider opting for the snowball method instead. By paying off your smallest debts first, you’ll pick up some quick wins. This can be incredibly motivating in the short term—even if it means paying slightly more in total.The most important thing is to pick a method that you will stick with. Giving up halfway through because you’re demotivated isn’t only damaging for your finances, it’s damaging to your sense of financial autonomy. Whichever method you choose, keep at it—you’ll thank yourself for it in the future!

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