Debt Avalanche Method
Definition
A debt repayment strategy where you pay off debts from highest interest rate to lowest, minimizing total interest paid over the life of all debts.
The debt avalanche method is the mathematically optimal approach to paying off multiple debts. You list all debts by interest rate (highest to lowest), make minimum payments on everything, and direct all extra money toward the highest-rate debt. Once that's paid off, you move to the next highest rate.
By targeting the highest interest rate first, you minimize the total interest paid across all debts. This saves you the most money compared to any other ordering. For someone with a 24% credit card, a 6% car loan, and a 4% student loan, the avalanche clearly prioritizes the credit card regardless of balance sizes.
The savings over the snowball method depend on the rate spread and balance sizes. If your highest-rate debt also has the largest balance, the avalanche could save thousands more in interest. If your highest-rate debt has a small balance, the difference between methods is minimal.
The downside is psychological. If your highest-rate debt is your largest balance, it could take months or years to pay off, with no visible wins along the way. This is where many people lose motivation and abandon the plan. The avalanche is the best strategy only if you follow through.
A practical tip: calculate the actual dollar difference between the two methods. If the snowball costs $200 more in interest over your payoff timeline, the motivational benefit of quick wins may be worth that cost. If the difference is $2,000, the avalanche's mathematical advantage is harder to ignore.
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Frequently Asked Questions
How much money does the debt avalanche save vs the snowball?
The savings depend on your specific debts. Typical savings range from $100 to $5,000+ depending on balance sizes, interest rate differences, and payoff timeline. Use a debt payoff calculator to compare both methods with your actual numbers.
What if two debts have the same interest rate?
If two debts have the same rate, it doesn't matter which you pay first from an avalanche perspective. You could use the snowball approach for the tiebreaker (pay the smaller balance first) or choose based on other factors like whether one has a variable rate that might increase.