How to use the debt avalanche payment strategy

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Paying off debt isn’t a one-size-fits-all transaction. What works for someone else might not work for you. If you are struggling to pay off debt, you may want to try using the debt avalanche method.

The debt avalanche method starts paying off your debts with the one with the highest interest, then continuing from that point. This method can help you work on your debts and reduce the interest you have to pay.

What is the debt avalanche method?

The debt avalanche method is when you focus on paying off the debt with the highest interest first and work down from there. The less you pay in interest, the more you can put toward repayment of principal.

You still want to make the minimum payment on your other debts, but the intent is that you’ll lessen the total amount you owe over time.

Debt avalanche vs. debt snowball: What’s the difference?

The debt avalanche method is different from the debt snowball method, which concentrates on paying off your smallest debt first, regardless of the interest rate. Many people like the debt snowball method because it gives them an instant “win,” but they might not save as much money in their debt repayment as they would with debt avalanche.

Both the debt snowball and debt avalanche methods can work if you stick with them — it’s a matter of which method you find most appealing. The debt snowball allows you to completely pay off some of your debts sooner. However, in most cases, the debt avalanche method will save you more interest.

How to use the debt avalanche method

You can get started with the debt avalanche method with a few simple steps.

1. List out all your outstanding debt

Consider all of the forms of debt you have. List each item of debt in the following categories:

  • Credit cards
  • Student loans
  • Auto loans
  • Personal loans
  • Outstanding bills
  • Medical debt

For each debt, list the amount you owe, the minimum monthly payments, the interest rate and the issuer. It can also be helpful to list when payments are due.

2. Arrange the list with the highest-interest debt first

Arrange the list in order from the highest-interest debt to the lowest-interest debt. You will then put your primary focus into paying the debt with the highest interest first. In the meantime, make sure to pay the minimum payments on all your debts to protect your credit score and keep from falling behind in payments.

Every extra dollar you have should go toward paying off the debt with the highest interest. If you get a raise or bonus at work, start a side hustle or switch to bringing your lunch to work instead of buying it, use that money to pay off your high-interest debt. You’ll do this until the debt with the highest interest is paid in full.

3. Continue the process until your debt is gone

Once your highest-interest debt is paid, move on to the next-highest-interest debt. Devote more money to each new debt as you no longer have to make minimum payments on the paid debts. Update your list every month as your balance goes down and eventually gets paid in full.

Advantages of the avalanche debt payoff method

The debt avalanche method has some advantages that make it appealing:

  • Removes the most expensive debts first: By paying off your highest-interest debt, you remove the debt that costs you the most money. While the debt snowball method might have quicker results in the short term, it might not be the more cost-effective choice.
  • Helps with managing high-interest debt: The debt avalanche method works best for those with high-interest debt, like credit card debt. Credit card interest rates can be in double-digits, so you’ll want to pay those off as soon as possible.

Disadvantages of the debt avalanche

The debt avalanche method may not be the right method for everyone if the disadvantages outweigh the positives:

  • Slower debt payoff: If your highest-interest debt is also one of your largest debts, it may take a long time before it is paid off. This may make it feel like you’re not making any progress towards paying off your debt, making it harder to stick to your repayment plan.
  • Harder to get extra to apply to loans: It will take more time before you can start applying the equivalent of minimum payments of the loans you’ve paid off to the loans you still have.
  • Longer-term goals: Many people prefer having shorter-term goals to work toward so they can feel satisfied with each win. If that sounds like you, you might prefer something like the debt snowball strategy.

Alternatives to the debt avalanche method

When debt looms, some people prefer to have smaller, achievable benchmarks when paying it. If you’re one of those people, the debt avalanche method might not be the best for you. For one thing, it could take months of payments to see results.

The type of debt you have might also impact the method you choose. If you don’t have high-interest credit card debt — maybe you have student and auto loans instead — you may want to consider an alternative strategy.

Debt snowball method

With the debt snowball method, you focus on repaying the smallest debt first while paying the minimum amount on your other debt. Once you’ve paid off the smallest debt, move on to the next-smallest debt. You free up more and more money after each debt is paid, which means that it becomes faster to pay off the highest debt you have.

Balance transfer credit card

Many balance transfer cards offer 0 percent APR for a set amount of time, anywhere from 12 to 21 months. If you can move over high-interest credit card debt to a new card, you’ll be able to end the accruing interest. Be cautious about any new debt with your balance transfer card. When the 0 percent APR promotional offer ends, you will need to start paying interest if you can’t make payments in full every month.

You may not be approved for the full amount of your outstanding credit cards. This means that you’ll be responsible for the balance on your new card, as well as any other cards that are still outstanding.

Debt consolidation

You can consolidate your debt through a few options, including a debt consolidation loan. This is when you take out a loan for the full balance of your outstanding debt, pay off that debt then make one payment to your personal loan every month.

If you have many kinds of debt, including credit cards and student loans, this might work best for you. But consider taking out a loan only if the interest rate is less than what you’re currently paying. For instance, if you get a rate that’s lower than that of your credit cards but higher than that of your student loans, use a debt consolidation loan to pay off your credit cards. Continue with student loan payments as normal.

Another debt consolidation option is a home equity line of credit (HELOC). With this type of debt consolidation, you borrow against the equity of your home — so it’s for people who have substantial equity in their home.

Debt management plan

If you’re struggling to repay your debt, you may need to reach out to a professional. Nonprofit credit counseling agencies can help you set up a debt management plan.

Depending on your situation, an agency may combine your debt into one manageable monthly plan. Sometimes they can cut your interest rates and negotiate with lenders to reduce what you owe. Keep in mind that not all debt will qualify for a debt management plan. Secured debt, like debt backed by a home or car, won’t be covered.

Key takeaways

  • The debt avalanche method is a debt repayment strategy that starts by paying off your debt with the highest interest first. Once you pay off that debt, you continue by paying off your next highest-interest debt.
  • The debt avalanche method may take longer to start paying off debts but it will often save money on interest in the long run.
  • Debt payment programs like the debt avalanche method or debt snowball methods aren’t objectively better than another, so choose the one that works best for your debt payments and lifestyle.

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