The Complete Guide to the Debt Avalanche

Debt Avalanche Method - picture of mountain avalanche

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The Debt Avalanche… the name just sounds awesome, right?

Well, it’s more than just the name that rocks. The Debt Avalanche is one of the most effective ways to destroy your debt once and for all. This debt repayment method is geared to help you pay off debt quickly while saving you the most amount of money in interest as possible. And as someone who despises debt, this is one of my all time favorite topics to talk about.

You see, I believe debt is a prison sentence. It’s like indentured servitude. We buy things now, with money we don’t have, trading away our future earnings for instant gratification. We actually steal from ourselves by not giving our future selves a choice. By running up debt now, we make the decision that we’re willing to work longer for it later.

But, you don’t have to be a slave to debt forever. With the right money tools, you can turn this thing around. By paying off your debt quickly, you’ll reclaim your income and put it to use in any way you want. You’ll be in control, and that’s what personal finance is all about.

So, what is the Debt Avalanche? How does it work, and how can it help you? Let’s dig in!

What is a Debt Avalanche?

The Debt Avalanche is a debt repayment method designed to help you pay off debt quickly. Like the Debt Snowball, this method creates an order by which each debt is paid off. The major difference comes in the order in which the debts are paid.

By using the Debt Avalanche, you’ll be able to:

  1. Organize and pay off your debt in a logical way.
  2. Focus on paying off one debt at a time.
  3. Use your money more effectively to eliminate the high interest debt first.
  4. Pay off your debt quickly by through focused effort.

Right now, becoming debt-free may feel like too tall a mountain to climb. But, by focusing on paying off one debt at a time, the debt avalanche relieves some of that burden. You’re not surrounded by 20 gigantic debts any more. By completing one task at a time, you’ll feel more relaxed and motivated.

The Debt Avalanche also helps focus your efforts to make a bigger impact. In addition to helping you stay motivated, this helps you get rid of debt quickly, building an avalanche of momentum that is hard to stop.

Preparing to Pay Off Debt


Before you engage in any type of debt repayment plan, you need to take care of a little financial housekeeping. By preparing your money before diving in, you’ll give yourself a better shot at success than just flying blind.

  • Get on a budget. – For the best results, it’s important to know how much money you already have coming in and going out each month. That means, you need to get on a budget. A budget is simply a plan for what you want your money to do each month. By creating a budget, you’ll know exactly how much extra money you have available to destroy your debt quickly.
  • Create an emergency fund. –  When your budget doesn’t work, it’s usually because you failed to plan for emergencies. We all know that things come up, so why not be prepared. Starting an emergency fund is like buying an insurance policy on your budget. So, when the car breaks down or the water heater goes out, you’ve got the money to fix it. Start by saving $1,000. Once you’re debt-free, increase your buffer so you have 3 to 6 month’s worth of expenses. An online savings account like this works great for efunds… plus, you might earn more than 100x the interest you earn on your current account.
  • Make debt repayment a priority. – Sometimes we say that we want to get better with our money, but our actions say otherwise. In order to destroy your debt quickly, you need to make it a priority. The reason the debt avalanche works so well is because it’s designed to pay this shit off STAT! Don’t get in your own way. Commit to the process and pay it off now.
  • Free up some cash.Comb through your expenses and start trimming the fat. Cut out as much crap as you can. Cable TV, expensive cell phone plans, restaurant spending, entertainment, shopping – get rid of it all! You couldn’t afford this garbage in the first place, so now take your medicine and cut it out. Use the extra money to pay down your debt at warp speed. By living like a pauper for a few months, you’ll eliminate your debt and be able to live debt-free for the rest of your life. I bet hardly anybody you know can say that!

How Does the Debt Avalanche Work?

Got your finances prepped and ready for a Debt Avalanche? Great! Let’s get to it.

While the Debt Snowball focuses on getting quick emotional wins, the Debt Avalanche focuses on paying off debt in the most mathematically correct way as possible. Your goal is still to pay off debt quickly, but the debt avalanche forces you to pay off your debt starting with the highest interest rate first.

4 Steps to Using the Debt Avalanche

Step #1) Create a list of all your non-mortgage debts and order them from highest interest rate to lowest. Don’t pay attention to the balances, just the interest rate. In most cases, your highest interest rates are going to be found on credit cards, but that isn’t always the case. Be sure to double-check and order them from highest interest rate to lowest.

Step #2) Pay the minimum monthly payment on all of your debts EXCEPT for the debt with the highest interest rate.

Step #3) After creating your monthly budget and planning for expenses, use all of your available funds to pay down your debt with the highest interest rate. That means taking all of the money you found by slashing expenses and creating a budget and chucking that change right at this single debt. The more you can throw at it, the faster it gets paid off, and the more money you’ll save on interest.

Step #4) Once you’ve paid off the debt with the highest interest rate, move on to the debt with the next highest interest rate. Use the money you were using to pay off debt #1, and add it to the minimum payment you were already making. Keep doing this until you’ve knocked out all of your debts!

Example of the Debt Avalanche

Alrighty… here’s an example of the Debt Avalanche in action. Let’s pretend you’ve freed up $1,500 a month to pay off your debt, and your bills look like this:

  • Credit Card #1: $5,000 at 18% APR ($100/month minimum)
  • Credit Card #2: $1,200 at 15.4% APR ($30/month minimum)
  • Car Loan: $8,200 at 4% APR ($410/month minimum)
  • Student Loans: $16,500 at 4.29% ($220/month minimum)

When using the Debt Avalanche, you’ll focus on the loan with the highest interest rate first. In this case, that’s credit card #1. So, after paying the minimum on the other three debts, you’re left with $840/month to pay toward credit card #1. You’ll have that thing paid off in about 6 to 7 months, saving over $13,000 in interest had you made minimum payments only. Pretty good right?

Now, take that $840 you just freed up and pay it toward the debt with the next highest interest rate, in this case credit card #2. Combine that money with the $30 you were already paying, and you’ll have debt #2 knocked out in about 2 months. Then take the $870 and apply it toward your student loans, combining it with the minimum payment you were already making. Keep doing this until every debt you have is paid off!

Got it?

Final Thoughts

Your debt wasn’t created in one night, and it might take a while to work through all of it. Trust me, this is important. You can do it!

When you don’t owe any debt, you can save more of the money you already make. There are fewer things that can sink your financial battleship because you have fewer debts. So, the faster you get this stuff paid off, the more stable your financial position will be.

Yes, it can be painful. Yes, it might suck. But by crushing your debt now, you’ll be able to enjoy things that your friends can’t later. You’re giving yourself options, and that’s what financial freedom is all about!

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  1. The Avalanche is a great way to pay off debts if you’re concerned about interest. I think in the long term it can save you more money in interest costs.

    I chose to do the Debt Snowball instead, since many of our interest rates were similar. We tackled credit card debt first (highest interest rates) and then tackled the lowest balance card first. That meant we had one debt paid off and one less monthly payment–meaning we could pay even more money towards bigger debts.

    Ultimately it’s all about finding what’s right for you. We never would have been able to pay off significant debt without creating a budget and cutting our expenses first.

  2. I have always been an advocate of this method over the snowball method. Probably because of my physics/math degree screams at me that it’s always quicker to do this vs snowball. But supposedly the snowball method causes a psychological win that helps people get more serious about paying off debt. I guess it depends on your personality.

  3. The Avalanche is the method I have used and am very happy with the outcome. The Snowball seems to be a less intimidating option for some, although for me it’s a more painful option as I would rather pay off my debt quick like a band-aid.

  4. Nice system you’ve put together … I need to follow it, as things have gotten a bit out of hand on my end!

  5. Snowball and avalanche methods are good. I have tried both, and the avalanche works best for me in many situations and in the long run as I slashes off the debt with the highest rate first.

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