The Debt Avalanche Method Explained

Wondering what the debt avalanche method is and how it works? It's all explained here.Wondering what the debt avalanche method is, and how it works to get you out of debt?

In short, the term “debt avalanche” describes the order you pay down your debt in, and that order is based entirely on the interest rates you’re being charged. (A debt avalanche is sometimes also known as “debt stacking”.)

Here’s why you might (or might not) want to use a debt avalanche to pay down your debt.

Details of how the debt avalanche works

A debt avalanche works like this: you make a list of all your debts and then place them in repayment order from highest interest rate to lowest interest rate, regardless of the amount you owe on each one.

While you do make minimum payments on all of your debts, you focus hard on paying off the debt with the highest interest rate first, proceeding on down your list until everything is repaid. The only thing that changes over time is the amount you pay toward the debt at the top of your list.

Once you’ve paid off your first target debt, you add that debt’s former minimum monthly payment to the minimum monthly payment of next debt in your list. This increases that next debt’s minimum payment size, so you begin sending more to that debt until it too is gone. The method continues on from there until all your debts are repaid, like in this example of 3 debts that are repaid over time:
A basic debt avalanche example - more details in the article

It’s like you have an avalanche of increasingly larger payments to attack your target debt with over time. In fact, the increasing repayment amount works exactly the same way in a debt avalanche that it does if you’re using the debt snowball method. That means the difference between a debt snowball vs. a debt avalanche is technically just the order your repay the debts in. (More on that later though – especially if you’re looking for the best way to pay off debt.)

Why use a debt avalanche?

The idea behind the debt avalanche/debt stacking is that you will pay less interest over time and so getting out of debt will cost you less. Who wouldn’t want that? There’s just one problem with that idea: it may or may not be true.

How much interest you personally end up paying depends on your individual debts, interest rates, balances, and whether or not you persevere or give up after a while. (That last bit is key.) That’s because personal finance is personal, and while math does work the same way for everyone, the results you get for a math problem vary based on the numbers in the problem.

So the truth is that when it comes to the debt snowball vs. the debt avalanche, you could end up paying more interest if you use a debt avalanche. You could end up paying the same amount of interest. You could in fact end up paying less interest as common knowledge has it. Or you could stay in debt forever because seeing only incremental progress for a long period of time makes you give up in frustration. Don’t do that last one :)

Who should use a debt avalanche?

The debt avalanche method works best for people who are HIGHLY motivated, who don’t give up easily even in the face of multiple setbacks, and who got into debt due to unusual circumstances that they’d done as much as they possibly could to prevent — OR for people who have already proven to themselves that they will follow their plan for the long haul without borrowing again.

Such as:

  • People who had great health insurance, a fat emergency fund, and a steady job, but still ended up overwhelmed by medical debt.

  • People who have already spent more than a year successfully paying down debt without adding any new debt in the process, for any reason.

In other words, the debt avalanche works best for those who have already proven to themselves that they don’t use debt any longer (for any reason) and are in control of their money and financial life. It also helps immensely to be able to see incremental progress (for example, paying down 5% of a $10,000 balance) as successful in order to do well with a debt avalanche.

Who should avoid a debt avalanche?

Depending on your individual debts, balances, and interest rates, using a debt avalanche could mean that you spend a long, long time (sometimes years!) working to pay off debt before you pay even a single one off. If the thought of plugging away at the same exact debt for years gets you down (or makes you not even want to start) the debt avalanche method is probably not for you.

If you got into debt the “usual” way, by using credit cards, taking out student loans, buying cars, or borrowing for emergencies instead of using an emergency fund for emergencies, and you haven’t changed those behaviors for good, it’s probably not for you.

Tough love alert: If you just can’t get over the fact that it isn’t logical to pay more interest than you otherwise might have to, keep in mind that it isn’t logical to pay interest at all, and yet you went ahead and did exactly that when you went into debt. That suggests that you didn’t get into debt logically, and so you’re unlikely to succeed at using logic to get out of debt either. You’re probably better off using the debt snowball method instead – at least at first – because that often brings quick wins and has been proven to help people succeed. It can light a fire under you and help keep you motivated as your work your plan.

Either way, run the numbers yourself, do a gut check, and review your your past experiences and actions to see how your gut matches up. Don’t just take advice off the internet from people who may never even have been in debt themselves, let alone successfully gotten out and stayed out.

Is a debt avalanche the best way to get out of debt?

Maybe, maybe not. That’s because the best way to get out of debt is the method that you’ll stick with. Many people have trouble following through on a debt avalanche until the end, which makes it a generic no for most people in my book.

However, no one knows you and your life better than you, and your plan needs to works for you and your individual situation. You can easily check the math part for yourself with the Pay Off Debt app, since it lets you see what would happen in a variety of scenarios – including a debt avalanche, a debt snowball, and custom plans where you arrange the debts in any sort of payoff order at all.

As far as motivation goes, again, you know yourself best. Keep in mind that hating the idea that you might pay more interest can be highly motivating in and of itself, with the end result being that you do everything possible to get your debt paid off faster using another method. I know it helped me to finally knock out my student loan in 5 months.

How quickly can you get out of debt with a debt avalanche?

How quickly you can get out of debt (with or without a debt avalanche) is going to depend on many factors, chief of which is you. Let’s look at one example though of the debt avalanche vs.the debt snowball. Say you have the following four debts to start with:

Debt A – $800 at 18.5% with a $24 monthly payment
Debt B – $5000 at 4% with a $150 monthly payment
Debt C – $21,500 at 4.2% with a $645 monthly payment
Debt D – $256.23 at 0% with a $7.69 monthly payment

You would place them in this payoff order using a debt avalanche:

Debt A – $800 at 18.5% with a $24 monthly payment
Debt C – $21,500 at 4.2% with a $645 monthly payment
Debt B – $5000 at 4% with a $150 monthly payment
Debt D – $256.23 at 0% with a $7.69 monthly payment

It works like this: Once Debt D was repaid, you’d take the $7.69 amount you had been paying to it each month, and apply that to Debt C. This would increase Debt C’s monthly payment to $652.69 until it too was repaid. Since both Debt B & C would be repaid the same month, once that happened you’d take the $802.69 total you’d been sending to them and add it to Debt A’s monthly payment, increasing Debt A’s monthly payment to $826.69 — but by that time of course you’d only owe about $226.73 on debt A, so you’d just pay it in full the last month and be done.

In this particular example, about 2 years and 10 months later, Debt D would be the first debt you’d finish paying off. Debts B & C would both be repaid after 3 years, and Debt A would be the last to be finished after 3 years and 1 month, when you would be debt free.

Using a debt avalanche & the numbers above, if you made no extra payments beyond the amounts of the minimum payments (and didn’t increase your debt in the meantime) it would take about 3 years and 1 month to get out of debt, and you’d pay about $2021.82 in interest.

On the other hand, if you used the debt snowball method instead, you’d place your debts in this order:

Debt D – $256.23 at 0% with a $7.69 monthly payment
Debt A – $800 at 18.5% with a $24 monthly payment
Debt B – $5000 at 4% with a $150 monthly payment
Debt C – $21,500 at 4.2% with a $645 monthly payment

It would (again) take about 3 years and 1 month to get out of debt, and you’d pay about $2021.74 in interest. In other words, you’d save about 8 cents by using the debt avalanche instead of the debt snowball method in that particular situation.

Change the numbers around to something else, and you’ll get different lengths of time and amounts of interest. You might save a little, a lot, or it could even cost you more.

How to make the biggest difference:

Here’s what actually makes the biggest difference when paying off debt, no matter what method you choose:

1. Make a firm commitment to not borrow money again, no matter what. That means changing your behavior so that you prepare for emergencies (because they will come up, for everyone), planning for unexpected expenses and building them into your budget, and tracking your spending so that it aligns with your goals and values.

2. Send as much extra to your debt as possible (above and beyond the minimum payment of your target debt) without going so crazy that your spouse hates you or you give up. Getting out of debt is not a diet. It’s a lifestyle change. A truly awesome one that can help you get the things you want in life for less. Remember that once you’re debt free, it’ll be like the whole world is permanently on sale because you’ll no longer be paying interest for anything you buy.

It’s not critical that you pick the “right” or “best” method of getting out of debt. It’s critical that you stop borrowing and don’t give up as you work to repay what you owe already. So go forth and get started!

Not sure where to start? Here are the basic steps we took to pay off over $147,000 in debt.

4 thoughts on “The Debt Avalanche Method Explained

  1. It is important to be well informed and to make sure you have a plan of attack when it comes to paying off your debt! Great, detailed, and helpful article, thanks for sharing!

  2. Very detailed and informative! We started our journey by following the debt snowball, but quickly realized that we did not need those “small wins” to keep going…so we made the switch! Although both methods are good in their own way, I love the debt avalanche approach :)

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