Debt Avalanche

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

• 10 Mistakes You Should Avoid When Managing Your Credit: Being in debt isn’t the end of the world, but there are certain things you should avoid to prevent your situation from worsening.
• Managing Your Money: Strategies to Consolidate Multiple Debts: Debt consolidation is another method you can use to manage your outstanding financial obligations. MoneyGeek’s guide explores this alternative in detail and shares the advantages and disadvantages it brings.
• The Biggest Financial Stressors for Americans with Debt During COVID-19: We have multiple stressors on a daily basis. MoneyGeek’s survey shows that most people considered their finances a significant source of stress during the pandemic.
• The Guide to Budgeting: Determining your disposable income is one of the first steps to managing your debt. If you find yours isn’t enough to begin debt repayment methods, budgeting can help you increase it. It also allows you to determine if you need to earn additional income.
• Understanding Credit Card Debt and How to Pay for It: Having a credit card can be an advantage, but if you’re not careful, your debt may grow exponentially without you noticing. It’s best to understand common pitfalls when using credit cards and learn some pay-down strategies.