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    What is the Debt Avalanche Method

    One of the worst things about being in debt is the amount of money you end up losing in the form of interest payments over time. If your outstanding balance and interest rate is high enough, it could amount to thousands of dollars. 

    To avoid this scenario, paying off the debt with the highest APR first is always a good idea - and that’s what the debt avalanche method is all about. The sooner the highest-costing debt is paid, the less interest it will accumulate over time.

    How to use it?

    An avalanche begins at the highest point of a slope, and when you use the avalanche method, debt that has the highest APR is paid first. Here’s what you’ll need to do. 

    1. Make a list of all your debts - credit cards, medical debts, auto loans, student loans, etc. 
    2. Check the APR (interest rate plus additional fees) on each of them and sort them from highest to lowest.
    3. Calculate your total monthly minimum payments - you’ll need to pay these on time each month to avoid penalties and higher interest rates. 
    4. Set an extra payment amount above the minimum payment - you’ll want to aim for an amount that lets you reduce your debt over the months. 
    5. As you repay your highest-APR debt, you’ll roll its payment into the second-highest APR debt and so on. Eventually, you’ll clear all your debts and save a ton on interest payments. 

    By paying down your most expensive debt first, you’ll free up more cash to pay down your lower-APR debts. The avalanche method makes mathematical sense - and more importantly, it’s one of the fastest ways to end up debt-free. 

    Let’s take a look at an example that will illustrate the method in more detail. 

    Debt Avalanche Example 

    To see how it works, let’s take a look at a list of debts that will look familiar to most of us. 

    Type of Debt
    Credit Card
    Auto Loan
    Student Debt
    Personal Loan
    Total Balance
    $5,000
    $12,000
    $20,000
    $3,000
    Minimum Payment
    $200
    $275
    $150
    $180
    APR
    18%
    4.5%
    5%
    8%

    Taking the total of monthly payments, we’ll need to have $805 on hand to make our minimum payments and stay in good standing with the credit providers.

    Let’s budget an extra $500 per month to pay down our debts, starting with the highest-APR debt - the credit card. 

    Here’s how our repayment schedule will run:

    • The credit card will be cleared within 10 months. We can now focus on the next-highest APR, the personal loan, and roll the credit card payments into paying it off.
    • By month 15, the personal loan will have been repaid. 
    • By month 38, the large student debt will have been repaid. 
    • By month 48, four years after we first began, the auto loan is repaid and we are totally debt-free. 

    With just $500 a month in extra payments, the avalanche method has allowed us to pay off $40,000 in debts - now that’s something to celebrate!

    Advantages and Disadvantages of the method 

    The avalanche method is effective and based on sound financial reasoning, but it also takes a lot of discipline and long-range thinking to use it effectively.

    Here are some of the pros and cons of using this method. 

    Advantages

    • By paying off the debts from the highest APR to lowest, you’ll eliminate expensive, toxic debt first and have low-interest debt remaining. 
    • This means that you’ll be paying off your balances with more of your cash - not high interest charges. 
    • If you’re a patient, analytical type of person who can commit to a long-term repayment plan, the avalanche method will get you to debt-free status faster than almost any other method. 

    Disadvantages

    • One of the drawbacks of using the avalanche method is that it may take a long time to repay some of your debts - like the student debt in our example above. 
    • This may cause you to become demotivated and suffer from “debt fatigue” - the feeling that you’ll never manage to repay your debts. 
    • If you need the regular motivation that comes with paying off your smaller debts in full, the debt avalanche method may not be ideal for you. You may want to consider the snowball method instead. 

    >> Read more on Snowball Versus Avalanche. 

    Bottom Line 

    The debt avalanche method is an excellent debt repayment method that eliminates high-APR debt first and helps you zero your outstanding balances while saving money on interest payments. 

    For patient credit customers who relate well to a numbers-based approach, the avalanche debt strategy can produce excellent results. It may not be ideal for customers who have a more emotional relationship with money and debt.