Debt Avalanche

Debt avalanche summary:

• Debt avalanche is a debt payoff method that prioritizes paying off debt with the highest interest rate first. 

• In a debt avalanche, you keep paying the minimum payment on each of your debts. Then, put any extra money you have toward the debt with the highest interest rate.

• Debt avalanche is a popular debt payoff strategy because it could help you reduce interest charges and eliminate debt faster compared to other strategies.

Debt avalanche definition and meaning

The debt avalanche method is a debt payoff strategy that focuses on first paying off your most expensive debt. 

When you use the debt avalanche method, you continue to pay the minimum amount due on all debts. At the same time, you put any additional debt payoff funds toward the debt with the highest interest rate. This debt payoff strategy gets rid of your most expensive debts first and could reduce the total interest you pay. Reducing the interest charges could help you clear your debts faster. 

Key concept: The debt avalanche method is a debt repayment strategy that prioritizes paying off debt with the highest interest rate first, to minimize interest charges. 

More about debt avalanche 

The debt avalanche strategy can be an effective way to tackle debt repayment. Since the debt avalanche method focuses on paying off the debt with the highest interest rate first, you could save a significant amount of money in interest using this debt repayment strategy. 

Here's how to follow the debt avalanche method while making payments on your debt: 

1. Make a list of all your debts, and note the balances and interest rates for each account.

2. Decide how much money you can afford to put toward debt repayment each month. 

3. Make the minimum payment on all your debts, except the one with the highest rate.

4. On the debt with the highest rate, make the biggest payment you can afford.  

5. Once the first debt is paid off, add its entire payment to the minimum payment you were already making on your next most costly debt. 

6. Repeat this process until all your debts are paid off. 

As you make progress in reducing your highest-interest debt, it’s important to keeping paying the minimum amount due on all other debts. You don't want to risk late payment fees or damaging your credit report and credit score. 

Compared to the debt snowball method, a debt avalanche could help you clear your debts about a month faster. Sometimes the two methods take the same amount of time, but in a debt avalanche, your final payment would be smaller.

The debt avalanche is just one debt payoff method. When tackling debt, you should follow a debt repayment strategy that works best for your goals and financial situation.