The Debt Avalanche Will Help You Pay off Debt for Less

When you use the Debt Avalanche to pay off your debt, you’ll need a little bit more patience, but you’ll be rewarded with big savings on interest.

The amount of debt that you currently owe is often referred to as your “debt load.” What a fitting description! Ask anyone who owes a lot of money in high-interest consumer debt—like credit cards and personal installment loans—and they’ll tell you that their “debt load” really does feel like an anchor that’s weighing them down.

The answer to this problem is simple: It’s time to pay down all those debts!

What? We said it was going to be simple, we didn’t say it was going to be easy. Still, there are ways to make it easier by giving yourself an easy-to-follow blueprint for success.

We recently wrote a blog post about the Debt Snowball repayment method, which prioritizes early victories to help you maintain your momentum. In this post, we’re going to cover the Debt Avalanche method, which will save you more money overall.

You pay off your highest interest rates first.

Similar to the Debt Snowball method, you start by putting all of your debts (including credit cards, personal loans, auto loans, online loans, etc.) in a certain order. However, unlike the Debt Snowball, you don’t order them from smallest balance to largest. With the Debt Avalanche, you put them in order from the highest interest rate to the lowest.

This is the methodology at the core of the Debt Avalanche. By paying off your debt with the highest interest rate first and the debt with the lowest interest rate last, you save yourself a whole bunch of money in interest overall. Sometimes, you’ll even get out of debt earlier than you would with the Debt Snowball.

Once you’ve got your debts in order, you’ll need to take a look at your budget and start slashing. The goal is to free up as much extra cash as you can to put towards debt repayment. The more money you can dedicate to paying down debt, the faster you’ll be debt-free and the more money you’ll save.

You take all those extra funds and you pay them towards the debt with the highest interest rate. With all your other debts, you continue paying only the minimum amount due. (For the sake of your credit score, you always want to make the minimum payments on all your debts.) Every month, You pay these extra funds towards this debt, and you do so until the debt is paid off entirely.

Pay close attention to this next part: Once that first debt is done, you take the money that you were paying towards its monthly minimum and you add it to your debt repayment funds. You then take that money and you put it towards the debt with the next highest interest rate.

Every time a debt is paid off with the Debt Avalanche you take its monthly minimum and you add it to your debt repayment funds. This way, every subsequent debt has more and more money going towards paying it off. You repeat this process until you’re debt-free entirely!

Let’s look at an example:

If you read our post on the Debt Snowball, then you know Dave. He’s a guy with $36,00 in high-interest consumer debt who’s looking to take control of his financial future.

In the other post, Dave chose the Debt Snowball repayment method, which meant that he took all of his debts and put them into a spreadsheet, ordering them from smallest balance to largest. It looked like this:

DebtBalanceAPRMonthly Minimum
Credit Card A$2,00017 percent$80
Personal Loan$4,0008 percent$125
Credit Card B$8,00023 percent$320
Auto Loan$10,0005 percent$189
Credit Card C$12,00020 percent$360

However, if Dave were to choose the Debt Avalanche Method, instead, he would order those debts from the highest interest rate to the lowest. His spreadsheet would look more like this:

DebtBalanceAPRMonthly Minimum
Credit Card B$8,00023 percent$320
Credit Card C$12,00020 percent$360
Credit Card A$2,00017 percent$80
Personal Loan$4,0008 percent$125
Auto Loan$10,0005 percent$189

Just like before, Dave was able to squeeze his budget and come up with an extra $750 to put towards debt repayment. Under the Debt Avalanche, he would add that $750 to the $320 monthly minimum that’s he’s paying on Credit Card B. He would pay that extra $750 towards Credit Card B every month until the debt was paid off in full.

All in all, it would take him nine months to pay off his first debt. This is very different from the Debt Snowball, where it would take Dave only three months to get that first sweet taste of victory. On the other hand, he would only end up paying $715 in interest on Credit Card B, versus $1,378 with the Debt Snowball, a difference of $663.

Once Dave had paid off Credit Card B, he would take its $320 minimum payment and add it to the $750 that he was already putting towards debt repayment. When he starts paying down his next debt, Credit Card C, he’s able to put a whopping $1,070 per month towards it on top of the normal $360 monthly minimum. It would take him another eight months to pay off that card in full.

In the end, it would take Dave the same amount of time to pay off his $36,000 in consumer debt with the Debt Avalanche as it would with the Debt Snowball: 23 months. However, over that time, it would save him roughly an additional $1,100 in interest versus the Snowball method. Those are some serious savings!

First, you’re going to need a better budget.

The hardest part of debt repayment isn’t choosing between the Debt Avalanche or the Debt Snowball; it’s finding the extra money to actually pay off that debt in the first place. You’re going to need to find a lot of additional savings in your budget in order to make it work.

But you know what? Getting out of debt is totally worth all that hard work! Once you’re not paying hundreds (or maybe thousands) of dollars towards interest every month, you can put that money towards much better things.

One of your top financial priorities should be building up an emergency fund. This is money that you can easily access when an unexpected expense arises. A well-stocked emergency fund will help protect you against predatory no credit check loans and short-term bad credit loans like payday loans, title loans, and cash advances.

But first, you’re going to need that better, trimmer budget! Don’t worry, we’re here to help. To learn more about building a better budget to supersize your debt repayment, check out these related posts and articles from OppLoans:

Which do you think is better, the Debt Avalanche or the Debt Snowball? Let us know! You can find us on Facebook and Twitter.

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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.