The debt avalanche method: What it is and how it works

If you’re looking for a strategic approach to becoming debt free, you’ll find there’s more than one way to go about it. For some people, the debt avalanche method is the preferred option. It involves making minimum payments on all your debts while paying extra on the account with the highest interest rate. 

There are other debt payoff strategies out there. But the debt avalanche method can lead to paying less interest overall, which can help you save money in the long run.

Key takeaways

• The debt avalanche method works by paying off debts with the highest interest rates first.
• When using the debt avalanche strategy, it’s still important to make at least the minimum payments on all debt.
• The debt avalanche is different from the debt snowball method, which involves paying off debts with the smallest balances first.
• Debt consolidation methods, including credit card balance transfers, might also be part of your debt repayment strategy.

The debt avalanche method—also known as the highest interest rate method—starts by making a list of your debts based on their interest rates, from highest to lowest. You’ll put money toward the balance that has the highest interest rate first and strategically make additional payments as you’re able.

Once your debt with the highest interest rate is paid off, any extra funds can then go toward the next-highest-interest loan. And, like an avalanche, your extra payments can grow along the way as you cross debts off your list. 

The debt avalanche method is often compared to the debt snowball method. But rather than focusing on the highest interest rate, a debt snowball works by focusing on the debt with the lowest balance first.

There are some potential benefits and drawbacks to using the debt avalanche method.

• You have the potential to pay down remaining debts faster once the high-interest debts are taken care of. 
• You have the potential to pay less interest over time since you’ll be slowing down or stopping the higher-interest loans’ ability to accrue interest by paying them off first.
• This method may be ideal for credit card debt or other debt with high interest rates.

• If your highest-interest debt is one of your largest debts, this method can be a more time-consuming way to pay down debt. 
• Debt repayment progress may feel slow, which can sometimes make it more difficult to stick to the original plan.

Here’s how you can get started using the avalanche method.

Create a list of all your debts and their total balances, monthly payments and interest rates. These could include credit cards, personal loans, auto loans, student loans and medical bills. 

Order the list based on the debts’ interest rates, from highest to lowest. A spreadsheet may make it easier to change the numbers later. 

You’ll want to make more than the minimum payment on your highest-interest account first. So it may help to create a budget to see how much more you might be able to pay toward your debt each month—especially since every extra little bit can help speed up your payoff.

Now review your budget to see how much money you can put toward the loan on the top of your list while still making minimum monthly payments on the rest. 

Credit cards generally charge interest that’s calculated daily or monthly, depending on the card. So paying down the balance can lead to less interest accruing. 

It might take some time to feel like you’re making progress, especially if the debt that has the highest interest rate also has a high balance. But don’t get discouraged—the math is on your side.

After you pay off your first debt, apply that entire monthly payment you were making toward your next debt. Over time, all those extra payments will build, helping speed up your debt payoff process. 

Wondering what this might look like in action? Here’s an example of how someone could use the avalanche method to calculate what it would take to pay off their debt: 

In this example, the first credit card has the highest interest rate. So any extra money would go toward that bill first—until it’s paid off. And you’ll still continue making the minimum monthly payment on all the other loans in the meantime. 

Once the first card is paid off, you can focus on the second credit card. Once both credit cards are paid off, you move on to the student loan, the car loan and then the medical bill. 

Throughout this process, be sure to make on-time minimum payments on the rest of your loans to avoid late payment fees or impacts to your credit score.

The debt avalanche and debt snowball methods can help you save money while paying off debt. But they aren’t the only strategies, and they might not be the best approaches for everyone. Consider other options and how you could use them instead of—or in combination with—the debt avalanche method.

Debt consolidation could be a good option if you have several different types of debt. Using a personal loan can help pay down outstanding debts and simplify payments, giving you fewer due dates and payments to manage.

This may be a good option if you can get an interest rate lower than what you’re paying now.

A balance transfer might let you move unpaid debt from one or more accounts to a new or different credit card. It can help you consolidate your credit card debt or get a lower interest rate, which could help you pay off your debt faster.

Just be sure to review all the terms and conditions before applying, especially since there may be fees associated with a balance transfer. Plus, you’ll want to check what interest you could be charged once the introductory interest rate ends. And keep in mind how canceling any old cards might affect your credit score.

If you’re struggling to make payments on your bills or outstanding debt, consider working with a credit counselor. Many credit counseling agencies are nonprofits and may offer a free or low-cost review of your finances as well as suggest debt-reduction strategies. 

These agencies can also contact lenders on your behalf to help work out potential payment plans or help you create a repayment strategy and a budget that fits your current needs. 

Many debt reduction options can depend, in part, on your credit. So monitoring your credit reports and scores can help you know when it might be a good idea to look into refinancing debt or whether you’re likely to get approved for a credit card with an introductory 0% APR offer. 

When it comes to monitoring your credit, CreditWise from Capital One lets you monitor your TransUnion® VantageScore® 3.0 credit score. It’s free for everyone—not just Capital One customers. And checking won’t hurt your score, so you can check it as often as you like. You can also use the Credit Simulator to see how different actions could impact your credit score. 

You can also get free copies of your credit reports from each of the three major credit bureaus by visiting AnnualCreditReport.com. There may be a limit on how often you can get your report, so be sure to check the site for more details.

The debt avalanche method is a way to handle debt that focuses on paying off high-interest loans first. 

If you’re driven by paying the least amount of interest in the long run, creating a debt payment avalanche may be the way to go. But if you’re hoping to overcome financial anxiety about your debt, the psychological benefit of getting quick wins with the debt snowball method is another option to consider. 

Just remember, there’s more than one method that can help you pay off debt. Consider your financial situation before you make any decisions.