Debt Avalanche: A Comprehensive Guide

What Is the Debt Avalanche Method?

Debt avalanche is a solution that involves paying off your debt with the highest interest rate first, then continuing until all debts are eliminated.

Consumers typically choose this method to reduce high-interest debt instead of focusing on the debt with the highest balance. After clearing the debt with the biggest interest rate, consumers can apply the savings from interest fees toward other debt repayments.

Ideally, by paying off accounts with high interest, you avoid the expense of compound interest. It’s also a good idea to look at the account’s Annual Percentage Rate (APR) to get an idea of how much you’d save each year by paying off the debt early.

What’s interesting to note about debt avalanche is that it doesn’t tackle debts based on their total amount, but rather by their interest. That means you could end up paying toward a smaller debt before a larger one if the interest payments are higher.

How Does Debt Avalanche Work?

Debt avalanche is an effective tool for consumers with long-term financial goals. This method works best when individuals follow through with debt payments over a period of at least 12-24 months.

The debt avalanche method involves the following steps:

Example of Debt Avalanche

Imagine a consumer named Natalia has three high-interest debts with $1,000 a month to put toward repayments. Here's a breakdown of her debt balances and interest rates for each:

If Natalia pays the minimum balance of $197.26 on her car loan and $227 on her personal loan, she'll have $575.74 a month to put toward her credit card balance. Including interest payments, Natalia is likely to pay off this debt in about 26 months. 

After clearing her credit card debt, she continues this payment structure with the personal loan. She can now put about $800 toward the loan each month, clearing the balance in just three more months. 

Finally, Natalia can tackle the car loan using the full $1,000 a month from her budget. Since she’s made minimum payments for 29 months, Natalia has reduced her total to $4,279.46, an amount she can quickly pay off.

Using the avalanche effect, Natalia is likely to pay off all of her high-interest debt in approximately 35 months. The following graphic illustrates Natalia's use of the debt avalanche method: 

Debt Avalanche vs. Debt Snowball

While similar in the practice of growing debt payments over time, avalanche and snowball have different goals. In the debt snowball method, consumers make more payments toward their smallest balances. Snowball aims to pay off debts as quickly as possible to build momentum and use the savings toward larger debts.

Using the avalanche method, consumers pay off debt based on interest rates, putting the most funds toward high-interest debt balances. After paying off the account with the highest interest rate, consumers move on to the next debt and aggressively pay the interest and the principal as before.

Both methods work best when you set goals and follow through each month. The snowball method is popular among consumers eager to see progress and end debts as quickly as possible by starting small and working up to big balances.

However, avalanche is favored by individuals who want to eliminate excessive interest payments first, even if it takes longer to clear all debts.

Debt Avalanche vs. Other Debt Relief Methods

Here’s a look at how debt avalanche compares to other top debt relief methods:

Tips for Using Debt Avalanche

Set Up Automatic Payments

You may find it easier to make consistent debt avalanche payments if you set up auto-pay for each account. However, it’s important to update the amount each time you clear a debt, changing the minimum payment on the next high-interest balance to a larger sum.

Put More Money Toward Repayments

Funneling as much of your income as possible toward debt repayment means you’ll pay off high-interest debts faster. Identify ways to cut spending and save or find an additional source of income to fund your pursuit of financial freedom.

Stay Motivated

Finding ways to stay motivated and pursue your financial goals matters nearly as much as your actual debt payments. Make avalanche an effective debt relief strategy by tracking progress, celebrating wins, and staying accountable through a family member, close friend, or financial advisor.

Is Debt Avalanche Worth It?

Using the debt avalanche method takes time and a commitment to making consistent monthly payments toward your debts. By eliminating debts with the most interest first, you can potentially save hundreds or thousands of dollars.

Debt avalanche isn’t necessarily a fast way to clear debts. Some may find debt snowball makes it easier to stay motivated by paying off balances faster.

Find Debt Relief With the Help of TurboDebt®

Another approach to debt relief is through an organization that handles debt settlement, consolidation, or management. In exchange for administrative account fees, you’re likely to pay off debts faster by leveraging professional accountability and expertise.

Professional debt relief companies like TurboDebt® offer programs tailored to your unique financial situation, offering a free consultation to start the process.

TurboDebt is consistently identified as a trusted partner in debt relief by consumers across the United States. With over 20,000 positive TurboDebt reviews on Trustpilot and Google and accreditation from the Better Business Bureau, clients find freedom from debt in as little as 12 months.

Find out today if you qualify for trusted debt relief and break the debt cycle for good!