How the Debt Avalanche Method Works
If you have accrued substantial debt through multiple loans or credit cards, finding your way out of debt can seem overwhelming. It is important to remain optimistic and to implement an effective plan to eliminate your debts. While there are several effective methods available, finding the one that works for you is vital in your success.
The Debt Avalanche method is similar to the Debt Snowball method but focuses on the interest rate versus the outstanding balance, it has been argued that mathematically it saves you the most in interest repayments and is one of the quicker methods of debt elimination.
The Debt Avalanche Method
Like other strategies, the Debt Avalanche method requires you to make a list of all your debts; however, the defining factor of this technique is to give priority to the debts with the highest interest rates. By focusing on the larger rates, you eliminate the greatest sources of interest which can save you more money over time.
With this method you must make all your normal minimum monthly repayments across all debts, you just put any extra money towards the debt with the highest interest rate. Once that debt has been paid out you allocate its payment towards the debt with the next highest interest rate and so on.
Comparing the Debt Snowball Method to the Debt Avalanche Method
See what method works best for you by using this calculator.
- Simply add in your debt amounts, minimum repayments amount and interest rates.
- It will then show you your normal monthly repayment amount…just type in what you think you can afford on top of that and it will provide you with how long it will take you to get out of debt based on that payment amount and how much interest you will end up paying.
- The calculator also makes it easy to toggle between the two different methods to see which may be more beneficial to you.
Why it Works
It’s simple math as your dealing with set figures over time. If your a purely logical person who can commit to this type of payment structure, then you can see the mathematical advantages of tackling the component of your debt that is hurting you the most - interest. There is, however, an emotional aspect that must be considered when discussing personal debt. Some people prefer to see small debts paid off first (Debt Snowball) as it eliminates a repayment all together and has an element of progress to it. Either way, you need to work on what works best for you and sometimes, depending on the amount of debts you have and their amounts, you can use a combination of both methods.