Is the Debt Avalanche Method for You?

Take a deep breath and think about your debt.

  • Do you tired of paying interest on your debt? 
  • Do you feel like you’re always paying down interest and never getting any closer to being debt-free?
  • Do you yearn for the freedom of independence from consumer debt and minimum payments? 
  • Have you made a budget and found some money to pay more than your minimum payment? 

If you said “heck yes” to any of these questions, the Avalanche Method for paying down your debt might be right for you! 

Are you ready to find some big wins and pay off your debt? 

Keep reading to find out how!

What is the Debt Avalanche Method?

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The Debt Avalanche Method is a debt paydown method that helps YOU pay down your debts. 

Rather than splitting your money to pay them all down equally, the Debt Avalanche method focuses on putting any extra money you have into your debt with the highest interest rate. 

Every time you pay off that debt, you take the money you were putting into that debt and move it to the debt with the next highest interest rate. 

Over time, your money turns into a bigger and bigger avalanche rolling down your debt hill until you eventually hit the bottom DEBT FREE! 

How Does It Work?

There are 5 easy steps to building your Debt Avalanche:

Step 1: Make a list of ALL of your debts from lowest balance to highest balance.

Take a deep breath and write it all down. Yep, all of it!

Some people will tell you not to focus on just consumer debt, ignoring your mortgage if you have one. I believe that since your mortgage is part of your debt, you should include it for visibility here. Plus, after you get to the bottom of your avalanche, paying off your mortgage may be a lot easier!

Step 2: Pay the minimum payments for all of your debt.

If you’re not able to pay down your debt right now, it’s not the time to start an avalanche. Focus on paying down your minimums (and not taking on any more debt) before you get started.

Step 3: Put all extra money towards your debt with the highest interest rate.

Pay down that debt with any extra money you find or make. Did you build your budget and find some ways to save on your discretionary spending? (link) Didn’t stop for coffee or go out for lunch today? Made some money with your side hustle? Found $5 in the couch? Put it towards your debt!

Step 4: When you’ve paid off the first debt, take the minimum payment AND your extra cash, and put them towards the debt with the next highest interest rate. 

This is where the avalanche starts to build! Don’t forget to reward yourself to keep yourself motivated- paying down debt is hard! Pop a cheap bottle of champagne, treat yourself to a nice home cooked dinner, or find an inexpensive or free way to celebrate your first big win!

Step 5: Repeat until you are DEBT FREE!

It may feel like it’s impossible, but you can do it! 

Does the Debt Avalanche Method Actually Work?

The easy answer is YES! 

Let’s try an example:

Step 1: Make a list of ALL of your debts from highest interest rate to lower interest rate. 

Let’s say you have 3 debts right now. If you put them in order by balance, they look like this:

  • Credit Card #1: $6,000 at 21% interest, minimum payment $164
  • Credit Card #2: $3,000 at 18% interest, minimum payment $75
  • Student Loan: $27,000 at 8%, minimum payment $327 

Step 2: Pay the minimum payments for all of your debt.

Adding up all of the minimum payments, you’ll need to pay $566 in minimum payments before you start your snowball. 

Step 3: Put all extra money towards your lowest balance.

Let’s say your extra cash at the end of the month is $200. You’ll put that towards Credit Card #1. 

Now, if you only paid the minimum payment on Credit Card #1, it would take you 5 years and 2 months to pay it off- and you would pay $3,664 in interest over that 5 years. 

Instead, by adding your $200 in extra cash to start your avalanche, you’ll pay that card off in 1 year and 8 month – and you’ll only spend $1,141 in interest! 

You just saved 39 months of paying down debt AND $2,523 in interest! 

You’ve earned a glass of champagne! 

Step 4: When you’ve paid off the first debt, take the minimum payment AND your extra cash, and put them towards the next smallest debt.

Now remember that you’ve been paying down Credit Card #2 at its minimum payment for the same 20 months, which means your current balance is now $2,306.

If you keep paying only the minimum payment, you’ll have this credit card paid off in 4 years and 11 months, AND you’ll pay $1,615 in interest over that time. 

But thanks to your avalanche, you can now add the $164 minimum payment from Credit Card #1 AND your $200 monthly savings to that payment! 

With your new payment of $439, it will only take 6 months to pay off Credit Card #2- and only pay $115 in interest. 

Less than 3 years into your avalanche, you’ve already paid off 2 credit cards, saved $4,024 , AND cut a combined SEVEN YEARS off of your payment plan! 

Great job! Now let’s finish off your debt!

Step 5: Repeat until you are DEBT FREE!

While you’ve been doing an AWESOME job making big debt paydowns, you’ve still been paying down your big student loan at its minimum payment- and now it’s time to knock that big balance out!

Since you’ve paid off both credit cards, you can now take the $239 from both minimum payments and your extra $200 and add that to your regular $327 student loan payment. 

After 26 months, your student loan balance is now down to $22,842. 

If you keep paying the minimum payment, you’ll pay off your student loans 7 years and 9 months later, racking up $12,347 in total interest. 

But you have an avalanche! Instead, with your $766 monthly payments, you’re going to knock out your student loan debt in just 2 years and 10 months, paying $2,710 in interest. 

You saved yourself 5 more years of debt payments AND over $9,000 in debt!

In just FIVE YEARS, you are completely DEBT FREE! You’ve saved over $13,000 in interest payments AND be debt free five whole years in advance! 

The Avalanche Method WORKS! 

Is the Debt Avalanche Method the Best Way to Pay Down My Debt?

While it’s hard to argue with the Avalanche Method after that example, there are other debt payoff methods that may help you stay better motivated.

For example, anyone who has struggles with motivation while paying down debt and needs to have success along the way to keep going, the Snowball Method may be a better option. 

On the other hand, the Avalanche Method focuses on paying down your debt with the highest interest rate, which can often be more effective in paying down debt. 

If you can push through without any big wins for a while (almost 2 years before Credit Card #1 would have been paid off in the example above), then the Avalanche Method might be a good fit for you. 

Are you ready to try the Avalanche Method for paying down your debt? Or did the Level Up guide to the Snowball method fit your needs better?

Share your plans in the comments! 

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5 Steps to Crush Your Debt with the Debt Avalanche Method