Key takeaways
The avalanche method is a debt repayment strategy focusing on paying off the account with the highest APR first, moving down from there.
The debt avalanche method can take longer than other repayment strategies, but you could save more on interest in the long run.
The snowball method, balance transfer cards, debt consolidation loans and debt management plans are other options you can explore if the avalanche method isn't for you.
If you’re overwhelmed with debt, you’re not alone. A report by the Federal Reserve found that credit card and auto delinquencies among Americans continued to climb in the last quarter of 2023, surpassing pre-pandemic levels. Wilbert van der Klaauw, economic research advisor at the New York Fed, says that “this signals increased financial stress, especially among younger and lower-income households.”
If, like millions of Americans, you are struggling with debt, using the debt avalanche method could prove useful. This debt payoff strategy focuses on tackling high-interest debts first, helping you save more on interest.
That said, paying off debt isn’t a one-size-fits-all approach. What works for someone else might not be right for you. Consider the pros and cons of the debt avalanche method, plus its alternatives, to choose an option that works for you.
What is the debt avalanche method?
The avalanche method is a debt repayment strategy that focuses on paying off debt based on interest rate. You’ll start by allocating additional funds toward the account with the highest APR – regardless of the balance — all while making the minimum payment due on your other accounts.
Once that account is paid off, you’ll put those extra funds toward the next account with the highest APR. You’ll keep repeating this process until all your debt is paid off.
How to use the debt avalanche method
You can get started with the debt avalanche method with a few simple steps.
1. List out your outstanding debts and set a budget
Consider all of the forms of debt you have: credit cards, student loans, auto loans, personal loans, medical debt, etc.
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.
Then, calculate how much you have left on your budget after covering the minimum payment dues in addition to your ordinary expenses. This will give you an idea of how much extra cash you can allocate toward your debt payoff strategy each month.
2. Arrange the list in descending order
Arrange the list in order from the highest-interest debt to the lowest-interest debt. For instance, if you have the following debts:
A $3,000 credit card with a 17 percent interest rate.
A $2,500 personal loan with an 11.5 percent interest rate.
A $1,500 credit card with a 24 percent interest rate.
You’ll put the $1,500 credit card at the top of the list. In the meantime, make the minimum payments on your other debts to protect your credit score.
Bankrate tip
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. This will speed up the debt repayment process.
3. Continue the process until your debt is gone
Once your highest-interest debt is paid off, move on to the next account with the highest rate. Using the example above, that means tackling the $3,000 credit card.
If your $1,500 credit card had a minimum payment due of $35 and you were putting in an extra $150, that means you’ll put $185 toward your $3,000 credit card in addition to its minimum payment due. Then, repeat this process with each subsequent debt on the list until everything is paid off. Update your list every month as your balance decreases to stay motivated.
Advantages of using the avalanche debt payoff method
Removes the most expensive debts first: By paying off your highest-interest debt, you remove the debt that costs you the most. This can save you more on interest in the long run.
Good for those with multiple kinds of debt: The debt avalanche method works best for those witha mix of debts with different interest rates.
Disadvantages of using the avalanche debt payoff method
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.
Requires patience: Because repayment may be slower, depending on your balances, it may feel like you’re not making any progress toward paying off your debt. This can make it harder to stay motivated and stick to your repayment plan.
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. Likewise, the type of debt you have also plays a key role in determining the best payoff strategy for your situation.
Debt snowball method
The debt snowball method, concentrates on paying off your smallest balance 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.
The snowball method could be a good fit if you have multiple debts with similar interest rates. However, if you have debts with much higher rates than others, the avalanche method can make more sense, as you could save more on interest.
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.
Additionally, you may not be approved for the full amount of your outstanding credit card balances. This means you’ll be responsible for the balance on your new card and 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 unsecured 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 currently pay. For instance, if you get a rate 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, which can lead to a lower interest rate. However, the approval process often takes longer than that of debt consolidation loans, plus your house is on the line if you default on payments.
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 a mortgage or an auto loan, won’t be covered.
The bottom line
The debt avalanche method can help you save money by getting rid of your most expensive debts first. That said, this approach requires patience, as the results may not be as quick compared to other repayment strategies, like the snowball. Likewise, the avalanche method may not be the best approach if you have multiple accounts with similar interest rates. Make sure to weigh these factors when choosing a debt repayment approach.
