What Is the Debt Avalanche Method?

For snow skiers, an avalanche is a dangerous situation. For those aspiring to be debt-free, a debt avalanche could be a productive way to save time and money while you pay off debt. 

To start the good kind of avalanche, you dig into the nitty-gritty details of your debt and make a list ordered by interest rates. Then you just work your way down the list with your extra cash.

Ready to get serious about DIY debt payoff? It can feel great to watch your highest-interest debt disappear as you pay it down. Let’s look at the debt avalanche method and see how it could help you reach your debt-free future faster than minimum payments alone. 

What Is the Debt Avalanche Method?

There are two common methods of DIY debt payoff: the debt avalanche and the debt snowball. The debt avalanche is the option that can save you both time and money on interest. 

To create a debt avalanche, you start by making all your minimum payments. Then, order your debts by interest rate, and focus your extra payoff cash toward the one with the highest rate first.

Once that first debt is paid, you switch focus to the debt with the next-highest rate, sending the money you were using to pay down the first debt to the new one. You repeat until you’re down to just the one with the lowest rate. By this point, your debt payments could be huge—a veritable avalanche rushing downhill to knock out your balance. 

Since you’re focusing your efforts on the highest-interest debt first, you’re likely to save money on interest through the debt avalanche process. Credit card interest rates average more than 20%, and can hit 30% in the case of retail store cards. 

Knocking out your most expensive balances before tackling lower-interest debts could make your debt payoff cheaper than the other popular method, the debt snowball (which orders the payoff from smallest balance to largest, rather than by interest rate). 

How to Use the Debt Avalanche Method

It’s time to tackle your debt avalanche using this five-step process. 

1. List all your debts

Knowledge is power, especially in making a debt payoff plan. Time to log into your debt accounts (credit cards, loans, and so on), or grab those account statements. Then pick up a notepad or make yourself a spreadsheet.

List out all the balances you owe, the monthly minimum payments required to keep your accounts current, and your APRs. APR stands for annual percentage rate—interest rate with other fees included to give you the real cost of your debt. 

2. Rank your debts by interest rate

Once you have your list, it's time to prioritize. Arrange your debts in order of APR—starting with the highest first. That debt with the highest rate will be the focus of your attention as you create your debt avalanche. The size of the balances you owe don’t matter for a debt avalanche.

3. Decide how much extra you can pay

A DIY debt payoff plan requires you to have extra cash to send to your creditors every month. If you’re struggling to make minimum payments, it’s a good idea to explore your other options for debt relief. 

But let’s say you’ve been picking up some overtime at work. You take a look at your budget, see how much you’re earning from overtime pay, and decide you can send an extra $300 per month toward your debts (beyond the minimum payments you’ll keep covering). Any extra money can help you pay down debt faster, so don’t be discouraged if you can’t send a lot more every single month. 

4. Pay the extra toward the highest-rate debt until it's paid off

Make all of your minimum payments for each debt. Then, that extra money you found in Step 3 gets paid toward your top-ranked debt with the highest APR.

Let’s say your highest-rate debt has a minimum payment of $100 per month. But you can tack on that extra $300 every month, so you send a total of $400 to that creditor (while still making minimum payments on your other balances). That $400 is like making four monthly minimum payments at once, so you could zoom through paying off that balance that much more quickly than if you were only paying $100. 

5. Add the payment to the next debt—and so on

Your first debt is paid off, and you’re thrilled to see that $0 balance! Now it’s time to refocus your debt payoff efforts to your next-highest-rate debt. 

Let’s say the minimum payment on this debt is $75 a month. But now you have an extra $400 you can pay every month (the $100 minimum monthly payment from that paid-off first debt, plus your extra $300 from overtime pay). So you send $475 per month to this debt, and it’s not long before you kiss that balance goodbye, too. 

You continue the process with each debt, until finally you’re sending that $300 extra cash plus all the monthly minimum payments you owed on the paid-off debts to your final balance, which has the lowest interest rate. You’ve built a giant snowy avalanche to conquer your debt. 

Debt Avalanche vs. Debt Snowball Method

The debt avalanche isn’t your only option for a DIY debt payoff—you could opt for the debt snowball method instead. Or you could combine features of each and create a debt “blizzard.” 

The debt snowball method starts the same way as the debt avalanche—by making a list that includes the details of all your debts. But instead of ordering your debts from highest interest rate to lowest, you order them by smallest balance to largest. 

For a debt snowball, you send that extra $300 a month you’re earning from overtime to the smallest debt (while keeping up with minimum payments across all debts). You end up paying off your first balance more quickly than you would with minimum payments, and that could give you a solid dose of motivation to keep going. 

Compare the debt snowball and avalanche to find the right option for your debt payoff plan. For a debt blizzard hybrid approach, you could start by tackling the lowest balance first, giving you a fast win for motivation. Then switch your focus to the debt with the highest interest rate. 

Pros and Cons of the Debt Avalanche Method

If you’re considering the debt avalanche method, weigh the potential upsides and downsides of this payoff plan. 

Potential benefits

The biggest reason to choose the debt avalanche over another payoff method is the potential to save money on your debt. APR is the cost of borrowing, so the debt with the highest APR is the most expensive to keep each month. 

Another possible perk of the debt avalanche is that it gives you a structured payoff order for your debts. It can be confusing to stare at a list of balances and try to decide which to focus on first. With the debt avalanche method, you simply start with the highest APR first, no matter which debt that is—and when that balance is down to $0, you tackle the next-highest APR.

Potential challenges

If your highest-APR debt is also your largest balance, you might struggle to stick with your debt avalanche plan. It could take many months to eliminate that first debt. 

How you focus your efforts in a debt avalanche could make the process seem longer than using a debt snowball, but rest assured, it’s not really longer. That said, motivation is key to DIY debt payoff, and you don’t want to lose your focus and fall short.

Just like other DIY debt payoff strategies, the debt avalanche method requires finding extra money. If you’re having trouble even paying the minimums to keep your accounts current, no payoff strategy outlined here is likely to be a good fit. Debt settlement or bankruptcy might be better for your situation. 

When the Debt Avalanche Method Works Better

You know yourself better than anyone, so dig deep into what motivates you to decide whether a debt avalanche could work for you. If you dislike the idea of paying even a dollar more of interest than necessary to your creditors, the money-saving nature of the debt avalanche might appeal.  

If your debts are mostly high-interest, like credit card debt, you could see a bigger impact from this payoff method. And if you know you can stay motivated to work toward debt payoff—even if it takes months or even a couple of years to get that first debt down to $0—the debt avalanche might work for you. 

No one DIY debt strategy works for everyone. If the prospect of taking a long time to zero out your first balance has you second-guessing the debt avalanche, remember that you can combine methods if you want. For example, you might send extra cash to your smallest balance first, and once that’s paid off, switch your focus to the balance with the highest rate. This kind of hybrid debt blizzard could be the right combination of cash savings and motivation. 

When a DIY Debt Payoff Strategy Might Not Be Enough

Completing a DIY debt payoff plan requires extra money to throw at your balances. But what if you’re struggling to keep your head above water and make your minimum payments every month? You’re not alone. Many people are living paycheck to paycheck, and watching their debt balances grow with interest. Luckily, you have options to create a debt-free future. 

It might be time to explore debt relief programs. You might opt to try debt settlement, which involves negotiating with your creditors to accept less than you owe to settle your debts. Debt settlement works for unsecured debts (such as credit card and personal loan balances). You don’t need to take out a new loan or even have good credit to settle your debts. 

You can negotiate on your own or hire a debt relief company like Freedom Debt Relief to handle it for you. Get answers to your questions about debt relief, and get in touch today for a free evaluation.