What is the Debt Avalanche Method?

If you're struggling with high-interest debt, the debt avalanche method may be a good option. By prioritizing paying off debt with the highest interest rate, this strategy can help you get out of debt faster and save money on interest payments.

How does the debt avalanche method work?

Here’s how the debt avalanche method works:

  1. List all your debts from highest to lowest interest rate.
  2. Make the minimum payment on every debt except the one with the highest interest rate.
  3. Put as much money as possible toward the debt with the highest interest rate until you’ve paid it off.
  4. Once the first debt is paid off, move on to the debt with the next-highest interest rate and repeat the process.

How to use the debt avalanche method for paying off debt

Here’s an example of what using the debt avalanche method can look like:

If you have $5,000 in credit card debt with an annual percentage rate (APR) of 15% and $2,000 in student loan debt with an APR of 10%, you would focus on paying off the credit card debt first. You would make the minimum payments on both debts while putting any extra money toward the credit card debt until it’s paid off. Once the credit card debt is gone, you focus on paying off the student loan debt.

How does the debt avalanche method help you maximize savings?

The debt avalanche method can be a powerful tool to repay your debts more quickly and efficiently. Here are some ways it helps you pay off debt and some additional strategies for paying off debt even sooner.

1. Make the most of your payments

By making the minimum payments on all your debts and paying more toward the one with the highest interest rate, you may save a significant amount of money in interest.

2. Make extra payments when possible

Any time you have extra money, apply it to your debt with the highest interest rate. This will help you get out of debt sooner and save money on interest payments.

3. Keep track of payments

If you can, automate your debt repayments so you never miss a payment. This can help you avoid late fees and keep you on track.

Benefits of the debt avalanche strategy

  • It’s a simple concept – all you have to do to get started is list your debts from highest to lowest interest rate.
  • Paying off debts with the highest interest rates first can save you money in the long run.
  • By focusing on high-interest debt, you can free up money in your budget more quickly and you may be able to pay off your debts faster.

Difference between debt avalanche and debt snowball

With the debt avalanche method, you continue making minimum payments on all your debts and focus on paying off the debt with the highest interest rate first. Once that debt is paid off, you move on to the next debt with the second-highest interest rate, and so on. This approach may save you the most money in interest over time.

With the debt snowball method, you continue making minimum payments on all your debts and focus on paying off the debt with the smallest balance first. Once that debt is paid off, you move on to the next debt with the second-smallest balance, and so on. Paying off small debts quickly can help you feel motivated.

Is the debt avalanche method right for you?

The debt avalanche method could make sense if:

  • You have high-interest debt
  • You’re motivated by saving money
  • You can handle some financial pressure
  • You’re disciplined enough to make extra payments each month

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

Additional Resources

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