Money » Get Out Of Debt » How To Use The Debt Avalanche Method To Get Out Of Debt
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How To Use The Debt Avalanche Method To Get Out Of Debt

The debt avalanche method is one of the most popular methods to get out of debt. How does it work and what are the pros and cons of the process?

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Our opinions are our own.

Table Of Content

Carrying credit card debt can significantly compromise your financial health. Unfortunately, many consumers do have credit card debt. In this chart compiled with 2020 Nilsen data, we can see that over time consumer debt has increased from $3.8 trillion in 1991 to $16.10 trillion in 2019.

However, the percentage of credit card debt remains relatively stable. It has only increased from 6.9% to 7.3% in the same time period. Of course, the amount of credit cards has increased, but as the percentage has remained fairly stable, it suggests that consumers are relying on other types of finance to manage their debt.

US Credit Card Debt as a Percent of Household Debt

When we talk about retiring a debt, your strategy can spell the difference between success and failure. If you don’t have one, chances are, you’ll head to failure. But those who have created a debt repayment plan know exactly how much extra cash they can pay towards their debts and what debt is on the top of their list. Your plan will motivate you and will optimize your chance of becoming debt-free as fast as possible.

You’ve heard about the debt snowball method. There’s another method to pay down your debt that you might not have heard about. It is the debt avalanche method and it can wipe off your debt once and for all.

Why You Should Pay Off Your Debt?

Avoiding debt is one of the most effective ways to ensure a secure financial future. Here are three reasons why credit card debt is harmful to your financial health and should be avoided:

  • Interest rates – Credit card companies charge interest rates on some cards that are more than double that rate, which won't help your finances if you're borrowing money at double-digit interest rates.
  • Fees – Credit card companies profit nearly as much from fees as they do from interest charges. If you fail to make a payment on time, you will be charged a significant late fee. You will be charged an additional fee if you exceed your credit card limit. If you want a special-reward credit card, you may have to pay an annual fee.
  • Credit Score – If you have credit card debt and a low credit score, you can expect to pay a lot more money than your friends who have good credit.

It's just one of those things that happens unexpectedly or when you feel helpless to stop it. It is, however, possible to remain debt-free. Use these measures to avoid falling into a debt trap.

What’s the Debt Avalanche Method?

The principle for the debt avalanche method looks at the burden that the debt interests place on the borrower and prioritizes their payment.

For example, you pay off the credit card from the highest interest rate to the lowest rate no matter what their balances are. Doing this allows you to lower the amount of each payment that just goes to interest at a faster pace compared to a debt snowball scheme.

Interest that keeps on building up makes it really hard for you to get out of debt. Zeroing on this debt can help you address this issue and register some visible progress. With the debt avalanche method, you can save money on interest and pretty soon, you’ll be wiping off your credit card balance in no time.

How to Use The Debt Avalanche Method

A debt avalanche works this way: You try to get a quick win upfront by retiring the one with the highest interest rate. The debt snowball method will try to retire the one with the smallest balance first and does not mind the interest rates at all.

1. Create a list of all your debts and arrange them in a repayment order from the highest interest rate to the lowest interest rate. Disregard the balance of each one for this list.

2. Keep paying at least the minimum payments on all your debts but prioritize paying off the one with the highest interest rate first. Then, you move on to the next one on the list, and so on until you have repaid everything. The only thing that will vary over your repayment time is how much you will pay toward the debt that’s first on your list.

3. As soon as you’ve crossed out the first debt on your list, add that debt’s minimum monthly payment to the minimum monthly payment of the next debt on your list. This will cause you to pay more every month on this debt and eventually, you’ll be able to pay it off too. Continue the method until you’ve paid off all your debts, like in our example where you can pay 3 debts over time.

4. Do this month after month. After some time, you’ll be able to pay off the first debt on the list. Once done, move towards putting extra money (plus the first debt’s minimum payment) towards the second debt on your priority list.

When it comes to debt repayment, the debt avalanche method is the most cost-effective and causes you to pay less interest and have a faster repayment timeline.

The other option is the debt snowball method where you pay the one with the smallest balance first even when it has the lowest interest rate. This method is a good motivator because it feels good to pay off one of your debts totally. But the disadvantage is that you may end up paying more interest over the years.

The Debt Avalanche Example

Let’s look at a simple illustration. Let’s assume that you have 4 existing debts with the amounts $500, $400, $200 and $100. When you use the snowball method, your strategy would be to pay off the smallest debt first. But in the debt avalanche method, you pay off the debt with the highest interest rate burden first. Therefore, the order of payment would be something like:

  • 1: $500 (25% interest rate, $25 minimum payment)
  • 2: $200 (20% interest rate, $10 minimum payment)
  • 3: $100 (15% interest rate, $5 minimum payment)
  • 4: $400 (10% interest rate, $20 minimum payment)

Let’s say that you have set a budget of $170 for debt payment every month. In month one, you would be able to meet the minimum payments to debts #2 to #4 (a total of $35). Your remaining $135 would all go to debt number 1, taking care of the minimum $25 and an additional $110.

Continuing this pattern, you would retire debt #1 in month 4. You can then continue paying the minimum payments to debts #3 & #4 but you will use the money you’ve freed up to pay deb #2 (minimum plus whatever is left on the budget). You would continue with this process until eventually, all your debt payment budget will go solely for the full repayment of debt #4.

The Debt Avalanche:  Pros & Cons

Financially, the debt avalanche is the most effective method. However, there are still some drawbacks to consider:

  • Pro: Pay Off  Your Debt In The Fastest Time Possible

This is most helpful in saving you tons of money when you have big debts with high interest. You can save more with this method compared to the snowball method.

  • Con: Long Process, Psychologically Challenging

Depending on your personal financial situation (your debts, balances, interest rates and debt repayment budget), the debt avalanche method can take a long time. It may take years to pay off even a single debt – imagine all the work you need to do!

If you don’t see yourself being able to chip off a portion of the same exact debt little by little every month, then this method is not for you. A spreadsheet might be helpful to track your progress or maybe a debt payoff calculator can help you zero in on a workable strategy.

  • Con: Requires High Motivation

This method works best for people who have a high motivation to get out of debt and who can face multiple setbacks. This is also more appropriate for those who incurred their debts due to unusual circumstances.

Debt Avalanche Vs Debt Snowball

The debt avalanche method sees you looking to save money over the lifetime of your debts by prioritizing paying off those loans that have the highest interest rates. However, the debt snowball method sees you paying off the smallest debts that you have first of all. The idea behind this approach is to generate some momentum that will lead to a snowball effect kicking in. It will likely increase your motivation as you eliminate your smaller debts completely.

Both methods are effective, and there isn't a significant difference in achieving your goal. You might have a better chance of success with those early quick wins. You can also change methods in the middle of the process — there are no hard and fast rules. The most important thing is to devise a strategy that will keep you motivated. And, depending on your financial situation, you may be surprised at how quickly you can pay off five-figure debt.

Debt Avalanche Vs Debt Snowflake

The snowflake method, on the other hand, looks for small, day-to-day savings and uses them to accelerate your debt-free day. It can be used with either the snowball or the avalanche strategies. Tiny savings amassed over time, like snowflakes, can have a significant impact. And you must act quickly in order to capture them: snowflakes vanish quickly.

The snowflake method is flexible because there is no need for a structured payment schedule. You are also more likely to think about even minor purchases before making them. A $100 or so extra paid toward your debt each month, on the other hand, will help, but it will not quickly pay off a $20,000 student loan. Furthermore, the absence of a well-organized payment plan may actually harm your debt management in the long run.

Many financial experts believe that the snowflake method is a great complement to the snowball or avalanche strategy. However, as a stand-alone strategy, it is not generally regarded as the best way to pay off a student loan or credit card debt.

How to Improve Bad Spending Habits?

In general, bad spending habits are defined as anything that encourages you to spend beyond your means. Even if you are not heavily in debt, a bad spending habit could jeopardize your future financial health.

These habits can range from something as simple as purchasing an expensive cup of coffee every day to larger impulse purchases. Take a close look at how much you actually spend to determine if something is a bad spending habit. Buying a fancy snack & coffee every morning may not seem like much, but if you spend $8 every weekday, it adds up to $150 per month or $1,800 per year. So, if you're having trouble budgeting and saving for something, that seemingly innocuous daily coffee may be a bad habit.

Your main goal should be to identify and acknowledge the spending habits that are causing you problems.

Begin by asking yourself the following questions: How frequently do you find yourself splurging on flashy gimmicks you see on social media or at the checkout line?Do you keep track of your spending? Do you frequently use your credit card to make purchases? When you're stressed or sad, how often do you turn to “retail therapy”? Be completely truthful with yourself: Recognizing bad spending habits allows you to confront them head on.

More Tips To Avoid Debt

Here are some options that can help you to avoid accumulating more debt:

  • Pay Your Balance Monthly – The best thing you can do for yourself is to keep your credit card balance at zero each month. That does not imply that you do not use the card. It simply means that you pay it off at the end of the month so that the next month begins with nothing. What's really great about this is that you can borrow money for things you want and need without having to pay interest on it.
  • Don't Max Your Card – You never want to max out your credit card for any reason. For one thing, if the balance is too high, it will be extremely difficult to pay off.
    Another disadvantage is that you won't have a buffer in case of an emergency and need to charge something. Another issue is that you will have a high credit utilization rate, which will harm your credit score. You want to keep that debt at a minimum so that your credit score looks better to those who are checking.
  • Control Your Emotions –  When it comes to emotional purchases, there may be no need at all. Instead, it could be an outside force that influences us and persuades us to make the purchase. This means that you made this purchase on the spur of the moment and based on the recommendations of others. You may not require the item at all, or you may not require it as urgently as you believe.
  • Change to Debit  – a debit card is similar to a credit card in one crucial way: you can swipe it on a machine. It's also convenient because you don't have to carry cash with you. However, because it is linked to your bank account, you cannot get into trouble with it. You cannot make a purchase if there is no money in your account. That means you won't be able to incur debt with this card.

Bottom Line

The debt avalanche method works best when your debt with the biggest balance happens to be the one with the highest interest rate too. If the one with the highest interest rates is the smallest loans, this method doesn’t make much of an impact.

Eventually, it is up to you to make the choice. On one end, there’s the debt snowball method which has proven itself to be effective in helping people stay on track on their debt repayment challenge. On the other end, there’s the debt avalanche method that has a mathematical backing to show that it’s cheaper for you. The decision is up to you.

Math will tell you that the debt avalanche method is the way to go. But it doesn’t necessarily mean that it’s the best method to retire your debts. If you ultimately decide that the debt avalanche method is for you, find ways to stay motivated and on course. You can set small goals for yourself and celebrate their achievements (without spending money) to mark your milestones. 


Debt consolidation is a type of debt relief, but it is usually something you can do on your own without the help of a debt consolidation company. Furthermore, your ability to obtain a debt consolidation loan will be determined by your current credit score.

If you already have a low credit score, you may have difficulty obtaining a loan. Debt relief , on the other hand, such as debt settlement, are not affected by your credit score.

Consolidating your debt allows you to combine all of your debts into a single payment. You will consolidate all of your debts into a single monthly payment. In many cases, this makes things much easier to manage.

When you consolidate your debt, you may also end up paying a lower overall interest rate on the debt. You can consolidate debt in a variety of ways, including obtaining a personal loan, tapping into your home equity, or obtaining a credit card with a 0% APR.

In mathematical terms, the avalanche method is the best way to pay off debt. This involves you marking your debts in order of highest interest rate to lowest interest rate. You will pay the minimum balance on each of these debts and then look to use any extra funds to pay off the debt with the highest interest rate.

The snowball method is another popular method for debt repayment. It observes you prioritizing your smallest debts. The idea is that as you eliminate various types of debt, you will gain momentum and be motivated to continue this process.

Debt management programs allow you to create a payment schedule that consolidates your various credit card debt payments into a single monthly payment. There will be no loan as part of this process, and credit scores will not be affected.

When you enroll in a debt management program, you will usually be required to close all of your credit cards in order to avoid further debt accumulation.

While it is possible to give your consent for organizations to check your credit report, these usually relate to credit applications. You may be able to access assistance for checking your credit report, but it may be simpler to request a copy and check the details for yourself. You are more likely to be able to spot any errors, since you will be more familiar with your personal and financial details.