How does the debt avalanche method work?

For those who want to pay the least amount in interest, “avalanching” can help consumers get out of debt faster. (iStock)

When it comes to paying off debt, there are two really popular strategies: the debt snowball (paying off balances in order from smallest to largest) and the debt avalanche.

The debt snowball method is popular for its emphasis on “quick wins” and building momentum, but there is powerful math behind the effectiveness of the debt avalanche and the ability to pay off debt faster when utilizing this method.

What is the debt avalanche method?

The debt avalanche strategy focuses on paying off debts with the highest interest rate first. By initially focusing on those with the higher interest rates, consumers pay as little as possible in interest and are able to make progress faster than if paying the debts from the smallest balance to largest.  


How does the debt avalanche method work?

First, rank your debts by interest rate while noting the minimum payment. As with any debt payoff method, you’ll still have to make minimum payments on all debts. The trick to “avalanching” your debt is to figure out how much extra you can contribute each month and put this amount toward the balance at the highest interest rate.

For example, you are currently carrying three debts:

  • $16,000 in consumer credit card debt at 19 percent, $414 minimum monthly payment
  • $5,000 in medical debt at 10 percent, $100 minimum monthly payment
  • $20,000 student loan at 5 percent, $350 minimum monthly payment

After looking at your monthly budget, you decide you can contribute an extra $200 each month above your minimum payments toward debt reduction.

Using an avalanche calculator, we’re able to see that using the method will enable us to pay off debt one month faster, but we’ll save close to $1,000 in interest.

Pros and Cons

The biggest drawback to the debt avalanche method is that if your highest interest rate balance is on the larger side, it can take months or years to feel like you’re making progress with your debt repayment. Without positive reinforcement, it can be difficult to stay on track with your goal or make debt payoff a priority in your life.


This is why it is so critical when picking a debt payoff strategy to look at your personality. Do you enjoy building momentum? Celebrating the wins? Taking things bit by bit? If so, the avalanche may not be the best approach, and the difference in interest may be negligible compared to the value of being able to stay on track for the long term.

Is the debt avalanche method the best approach?

There is a big advantage to the debt avalanche method - money saved. In our example above, the amount of money saved by doing the avalanche is on the smaller side, but depending on the amount of debt you’re carrying, the savings by going the avalanche route could be significant. What would you do with the money saved on interest?

By using this method you’re guaranteed to save money, which you can then funnel into other financial goals. Other options for debt reduction may not be available to you depending on your credit score and total household income, but for those especially keen on saving as much on interest as possible, try looking into debt consolidation options. Personal loans or home equity line of credit can also reduce interest rates and, potentially, shorten the overall amount of time spent paying back debt.