Debt Avalanche

ByNathan Paulus

Updated: November 8, 2023

ByNathan Paulus

Updated: November 8, 2023

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What Is the Debt Avalanche Method?

Debt reduction strategies have become integral for sound financial management. A primary objection is to not only pay off debts entirely and limit additional accrued interest, but to do so in a timely manner. The debt avalanche method is a good solution: where you pay on your accounts with the highest interest rate and work your way to the lowest.

Debt avalanche is the same as the stacking method and debt ladder. It’s an ideal approach to avoid paying more interest in the long-term. Understanding the types of debt you have and various debt management strategies can help you immediately begin decreasing your debt and improve your finances and overall well-being.

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Understanding Debt Avalanche

Juggling debts can be daunting and financial stress can impact your mental health— feeling overwhelmed, anxious and not certain of where to begin. One of the primary difficulties with debt is that it accrues interest over time. The longer you don’t implement a debt reduction plan, the larger your financial obligations become.

If you want an approach that helps you save on interest, debt avalanche may be a good fit. Starting is simple: review your debts and identify the one with the highest interest rate. That’s your priority. Now, it doesn’t mean that you stop paying attention to everything else. You’ll still pay the monthly minimum for all your financial obligations. However, now you can add any extra monthly income you have to the debt with the highest interest.

Debt avalanche is a popular accelerated debt repayment strategy. As the name implies, it’s a strategy to help you pay off your debt faster. It’s important to review your loan documents carefully, too. Some lenders prohibit early payoff methods and doing so could result in penalties.

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How to Apply Debt Avalanche

The debt avalanche method is a popular choice because it’s easy to apply and doesn’t require assistance from a financial expert. You can start by working your way through the six steps detailed below.

1
Calculate your monthly disposable income

After you’ve paid your essential expenses — food, rent, utilities, etc. — how much money is remaining? This is your disposable income which can be used for debt repayment.

2
List your existing debts

Create a list of all your debts, no matter how small they may be. When you have noted everything, arrange them according to their interest rates. Your disposable income should be applied to the loan with the highest rate.

3
Review your monthly minimums

Your debts have payment deadlines and monthly expenses. Review these details and add them to your list of debts.

4
Assess your leftover funds

Once you’ve paid your monthly expenses, assess how much of your disposable income is left. This amount can be used as an additional payment for your debt with the highest interest.

5
Pay the first debt in full

Repeat the process above each month until you've paid the debt with the highest interest in full. You can then use the amount you used to pay as an additional payment for the loan with the second-highest interest rate.

6
Repeat the process

Continue this process until you’ve paid off your second debt in full. You will keep working this same process until you’ve paid off your debt with the lowest interest rate and have paid your debts off completely.

While the debt avalanche method is simple in concept, it’s a good idea to examine how it might apply to a specific situation. Doing so can help you determine if this process is a good fit for your finances.

Debt Avalanche in Practice

Get a better idea of how the debt avalanche may work in this real-life scenario below. The figures in the table provide sample monthly debt expenses and allow you to follow the process as we go through the various steps.

Debt type
Balance
Annual Percentage Rate (APR)
Monthly Minimum

Credit Card

$8,000

18%

$150

Personal Loan I

$4,000

6%

$200

Personal Loan II

$5,000

4%

$300

Auto Loan

$10,000

3%

$350

Real-Life Example: 26-Year-Old Ivan

To illustrate the debt avalanche method, Ivan has a goal to be debt-free by the time he turns 30. He is a 26-year-old with a steady job and is currently focusing on paying off his debts — several personal loans, a car loan and his credit card. Here are the steps he took to accomplish his goal.

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Benefits and Drawbacks of the Debt Avalanche Strategy

While there are multiple debt management strategies available, the debt avalanche method has become popular because it's one of the most efficient approaches. However, there is no such thing as a perfect debt reduction method. Although the debt avalanche method offers many benefits, it also has drawbacks. Before you determine if this strategy is right for you, take a moment to understand the benefits and drawbacks of the debt avalanche method.

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Is Debt Avalanche Right for You?

It’s up to you to determine if the debt avalanche method is the best debt management strategy for you. There are some essential questions to consider before deciding if this method is worth pursuing or not.

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Alternatives to Debt Avalanche

Since every financial situation is unique, there isn’t always a clear path to resolving debts. While debt avalanche offers an accelerated path, it may not be within your means to attempt this strategy. There are several other options you may find work best for your situation detailed below. Remember, the best debt management strategy is something that you can stick with until you can pay your debts in full.

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4 ALTERNATIVE STRATEGIES

1. Debt snowball: The snowball strategy is probably the most popular alternative to debt avalanche. It operates in a similar process, by determining disposable income and listing your expenses. However, debt snowball involves paying off the debt with the smallest balance. It often brings immediate results, resulting in higher levels of motivation.

2. Debt consolidation loan: Another way to handle multiple debts is by combining them in a single, larger loan. Debt consolidation offers unique benefits, such as lower interest rates and an accelerated debt repayment timeline. It’s also easier to manage since you’ll only have to deal with one due date and monthly payment per month.

3. Debt management (with a counselor): Although some people prefer DIY debt management strategies, others may need external help. You don’t have to do it on your own — you can procure the services of a credit counselor who will help you create a debt management plan. All you need to do is execute it and continue to work at achieving your milestones and goals.

4. Balance transfer credit cards: This alternative works best if most of your debt comes from using multiple credit cards and you can transfer your existing balances into one. If you can find balance transfer cards with 0% APR offers, you can avoid paying for interest for a limited time. Since it consolidates all your credit cards, you’ll only have to pay one monthly statement.

Debt Avalanche FAQs

You may have several questions regarding the debt avalanche method. Here are the most commonly asked ones to provide you with more information.

What is debt management?
What is an accelerated debt repayment?
How do I determine my disposable income?
How does the debt avalanche work?
What if the debt avalanche method doesn’t work for me?
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Related Content

There are several concepts related to debt management and the debt avalanche method. The following resources can help you learn more about managing debt, your emotions and how to continue to pay off your balances.

About Nathan Paulus


Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.