Debt Avalanche Method: What It Is and When to Use It

The debt avalanche method is a debt-elimination strategy for when you have multiple sources of debt. 

It prioritizes paying off high-interest debts first, which can minimize the total amount of money you spend repaying your debts over time. 

This mathematically minded approach sounds ideal, but the avalanche is often criticized for ignoring the psychological side of debt elimination.

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  • With the debt avalanche, you make minimum payments on all your debts, but put extra money toward your highest-interest debt.
  • Use the avalanche if you have credit card balances, as they have particularly high interest rates.
  • While the avalanche is best mathematically, the snowball method can be more motivating.

. . .

How Does the Debt Avalanche Method Work?

With the debt avalanche method, you make minimum payments on all your debts and put spare funds toward extra payments on the debt with the highest interest rate. 

Let’s call this highest-interest debt your “priority debt.” 

After your initial priority debt is repaid, you shift priorities. You take all the money you formerly paid toward that first priority debt and reallocate it toward the debt with the next-highest interest rate. 

The cycle repeats until all your debts are paid off.

Debt Avalanche Method Example

Here’s how you would repay a personal loan, car loan, student loan, and credit card balance using the debt avalanche method.

Step 1: Gather debt details

Start by writing down the following info for each of your debt sources:

  • Current interest rate
  • Remaining balance
  • Minimum monthly payment

Step 2: Calculate your extra payment

Review your budget and add up your projected monthly expenses, including your minimum debt payments. 

Then subtract those combined expenses from your monthly income. That figure is the extra payment you’ll make toward your priority debt.

For this example, we’ll go with a $225 extra payment.

Step 3: Make a debt avalanche spreadsheet

Create a spreadsheet with columns for:

  • Name of the debt source
  • Interest rate
  • Remaining balance
  • Minimum monthly payment 

Order the debts from highest to lowest interest rate, and input the rest of the info you gathered in Step 1 into the spreadsheet. 

Add a fifth column to the spreadsheet for the extra debt payment, and input the figure you came up with from Step 2 to the priority debt, like so:

Debt sourceInterest rateRemaining balanceMinimum monthly paymentExtra payment
Credit card21.5%$8,500$237$225
Personal loan11.9%$3,000$79N/A
Auto loan8.3%$20,400$417N/A
Student loan6.9%$17,800$206N/A

Step 4: Make payments and update data

For your priority debt, make a combined monthly payment of its minimum and your extra payment ($237 + $225 = $462). 

Make only the minimum monthly payment for the other three debts, and adjust the data in your spreadsheet as your balances drop each month.

In this example, your initial priority debt will take about two years to pay off.

Step 5: Stay the course

After your first priority debt is fully repaid, you’ll move on to your next priority debt. 

In our example, you’d take the $79 personal loan monthly payment and add the $462 you were paying toward your credit card balance. This increases your priority-debt payment like an avalanche’s mass increases as it accelerates. 

Debt sourceInterest rateRemaining balanceMinimum monthly paymentExtra payment
Credit cardN/A$0N/AN/A
Personal loan11.9%$1,738$79$462
Auto loan8.3%$13,558$417N/A
Student loan6.9%$15,265$206N/A

With a $541 ($462 + $79) combined monthly payment, this next priority debt will take only four months to pay off. 

You’d then continue the process for about two more years until all your debt is completely repaid. 

READ MORE: Best Apps To Help Pay off Debt

Debt Avalanche vs. Snowball

The avalanche will theoretically decimate all your debt and save you money. 

But Dave Ramsey, author of “The Total Money Makeover” and a guest on the Erika Taught Me podcast, argues the debt avalanche takes too long to accelerate and few debtors see it through. 

“The simple analysis is: Pay off the highest interest rate first … but it leaves out the probability of completion,” says Ramsey. “And almost no one completes the debt avalanche.”

Ramsey instead recommends the debt snowball method, which prioritizes repaying debts with the smallest balances first, regardless of their interest rates. 

“Almost everyone completes the debt snowball, because of the feedback loop, psychologically,” says Ramsey. “When you pay off something, you get excited, your hope level goes up, and you keep going.” 

The first debt in our avalanche example took nearly two years to pay off. With the snowball, it would have taken less than a year to repay — far less fatiguing for those who thrive on a sense of momentum.

But there’s a tradeoff: The snowball would have resulted in an extra $616 in interest payments overall. 

READ MORE: How to Change Your Relationship with Money 

Optimizing the Avalanche

If you’re concerned the avalanche will sap your motivation, you could modify the basic method.

“One way to stay motivated is to set checkpoints to reward incremental progress,” says Bruce McClary, a financial educator at the National Foundation for Credit Counseling

“Staying connected to others who share the same journey also helps by combining accountability with motivation.”

This approach is effective in my experience. 

I initially struggled when I tried using the avalanche method to pay off a credit card balance, student loans, and an auto loan. As my motivation waned, I regressed into making only minimum monthly payments on my balances, one of the most damaging money habits you can slip into.

That trajectory reversed when I broke the big, “this will take forever” balances into smaller repayment milestones and gave myself rewards for hitting each. 

Splitting a $10,000 car loan into five $2,000 mini-loans approximated the psychological boost I would have enjoyed from the snowball while preserving the interest-slashing advantage of the avalanche. 

The treats I gave myself at the end of each milestone were shared with a colleague who felt similarly stuck in her debt repayment journey.

If you don’t have a debt buddy to commiserate and celebrate with, McClary suggests creating visual reminders of your goals and engaging with them by hand.

“Creative gamification is a great way to add energy and fun to the process,” he says. “The journey could be represented in board game format, with spaces reflecting the different stages of becoming debt-free.”

READ MORE: Take Control of Your Finances With These 5 Smart Money Tips

FAQs

What is debt stacking?

Debt stacking is any debt repayment strategy in which you make minimum payments on all your debts and apply extra funds to one priority debt. 

As each debt is repaid, your priority debt shifts, and you reallocate money from the old priority debt to the new. 

The avalanche and snowball methods are both forms of debt stacking.

Which debt should I pay off first?

The debt you should focus on paying off first depends on your debt situation and personality. 

If all your debts have comparable interest rates, focus on the debts with the smallest balances first. Eliminating low-balance debts can empower you if you respond well to quick victories. 

But if one of your debts has a significantly higher interest rate than the others, you should strongly consider working toward repaying that debt first, as that will save you more money.

TL;DR: How To Get Out of Debt With the Debt Avalanche Method

The debt avalanche tackles your debt with the highest interest rate first. Then, once that’s paid off, you work down to the next highest interest rate.

This method helps you save the most money on your debts, but it can be less motivating than the debt snowball method.

An option for people who want the psychological benefits of the snowball while saving money might be to create a hybrid version that breaks the avalanche down into smaller goals.

Listen to the full interview with Dave Ramsey, or check out these other episodes of the Erika Taught Me podcast:

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.