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Debt Avalanche: Boost Debt Repayment With This Strategy

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If you have extra money left over each month after you’ve paid your bills – and are interested in paying off debt at an accelerated rate – you might be interested in a repayment strategy called the debt avalanche.

With a debt avalanche, you’ll list your debts from highest to lowest APR. Each month, you’ll make the minimum payment on all of your debts, but put any additional money toward the debt with the highest rate. You keep paying off your debts – again focusing first on the debt with the highest APR –  until you’re finally debt-free.

How a debt avalanche works

A debt avalanche is a popular repayment strategy. It is sometimes also referred to as debt stacking. It involves putting extra money toward your outstanding debt with the highest interest rate as you make the minimum payment on your other debts. Once you’ve paid off the targeted debt, you’ll move on to the second-highest APR and so on until all of your debts are paid off. If two of your debts have the same APR, you should prioritize the one with the higher balance.

If you have several debts, creating a debt avalanche worksheet can keep you organized as you repay debt. You’ll list the debts with the highest APRs first, as well as the monthly minimums you owe. If you’re just paying the minimums due, these will also be your current monthly payments.

Type of Debt Minimum Payment Current Payment Balance Interest Rate
Credit Card No. 1 $100 $100 $2,000 22%
Credit Card No. 2 $139 $139 $4,000 15%
Personal Loan $50 $50 $1,000 11.5%
Car Loan $365 $365 $25,000 6.5%

In the above example, it would take you 86 months to pay off your debt if you only made the minimum monthly payments.

However, let’s say you have an extra $250 to put toward your debt each month. Using the debt avalanche method, you’d begin by repaying credit card No. 1, followed by credit card No. 2, then the personal loan and finally the car loan. If you were to stick to this plan and pay off your debt using the debt avalanche, it would take you just 40 months to get out of debt – or about half the time.

Pros and cons of a debt avalanche

A debt avalanche can go a long way toward shaving interest costs, so financial experts generally consider it to be the most financially sound way of paying off debts. However, it’s possible the debt with the highest APR is also the debt with the highest balance, which means you could lose motivation spending months or even years chipping away at the same balance.

Here’s a quick look at what to consider before taking on this payoff strategy:

Debt avalanche method
Pros Cons
  • Because you pay off higher interest rate debts first, you save money on interest over time.
  • You will be out of debt more quickly than if you were to prioritize paying off debts according to balance.
  • You could lose motivation if your highest APR debt is also your biggest balance.
  • The debt avalanche requires more discipline than other debt repayment strategies, like the debt snowball.

How a debt avalanche compares to a debt snowball

Wondering what’s better for you – a debt snowball versus a debt avalanche? The debt snowball is arguably more popular and involves paying off debts from smallest balance to largest balance without taking APR into consideration. Because you start by paying off debts with the smallest balance, you often knock out entire balances more quickly than you would with the debt avalanche method.

For most people, a debt snowball works best when they have a steady amount of extra cash to pay off debt. That’s because this repayment method assumes that as soon as one debt is paid off, you’ll take the minimum that you would have paid on that debt and apply to the debt with the next smallest balance, in effect “snowballing” the amount you owe.

Many people like the debt snowball method because of the motivation that comes from paying off a debt once and for all – often in as little as a few months. While the debt avalanche will help you save more money on interest and pay off your overall debt sooner, research has shown people tend to be more successful with the debt snowball method because of the psychological boost that comes from eliminating an entire balance.

Which repayment method is right for you?

It’s more important to pick the strategy you know you’ll stick with. Go for the debt avalanche if you know you’re disciplined, as it makes more sense financially. If you think you’ll struggle staying motivated with the debt avalanche and know you’ll benefit from the small “wins” associated with clearing entire balances, go for the debt snowball.

What matters most isn’t the strategy you choose, but rather your commitment to sticking to a repayment plan for most likely months, if not years. Both the snowball and avalanche method are known to help pay debt. You’ll become debt-free with both approaches – and that’s the most important thing.


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