How to Use the Debt Avalanche Method to Pay Down Debt

Starting with high-interest debt is an effective way to get ahead quicker.
Last updated Sep 20, 2020 | By Lindsay Frankel
Woman Using Debt Avalanche Method to Pay Down Debt

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If you’ve got debt, don’t fret! You’re definitely not alone in your predicament, and you’re also not doomed to a lifetime of mounting interest. The debt avalanche method is a great way to get out of debt faster, so you can put your hard-earned cash toward the things you care about most.

The truth is, many people are saddled with debt, and it’s not an easy problem for anyone to overcome. Consumer debt reached an all-time high in 2018 — Americans now owe a collective $13 trillion. That works out to about $38,000 in personal debt per person on average, which doesn’t include home mortgages.

Whether you owe less or more than that, you’ll need a plan to overcome your debt and achieve financial security — and the debt avalanche method is a proven strategy when it comes to eliminating debt.

What is the debt avalanche method and why does it work?

The debt avalanche method is an approach that tackles your highest-interest debt first and foremost. The debt avalanche method works well for any debt that’s accruing interest, from payday loans to credit cards to auto loans.

The debt avalanche method is effective because it prioritizes your most costly debt so that you accrue less interest over time, which helps you get out of debt quicker and pay less money overall. From a total cost perspective, it’s the most efficient way to get out of debt.

Budgeting is key with this strategy, since you’ll need to allocate money to throw at your highest-interest debt each month. You’ll still keep up with minimum payments for all your debt, but you’ll put any extra toward whichever debt has the highest interest rate.

It all starts with knowing the amounts and interest rates for all of your debt. Once you have that information, just follow the simple steps outlined below, and you’ll be well on your way to getting out of debt.

The 3 basic steps to the debt avalanche method

1. List out all your debt, ranked in order of highest interest rate

You can find this information on your latest paper statement or on your financial institution’s website. Use an Excel or Google Sheets spreadsheet to organize the information, or just grab a pad of paper if you want to keep it simple. Here’s an example of what to write down:

Debt Total debt Interest rate Minimum payment
Credit Card $10,000 15% $400
Personal Loan $2,000 10% $100
Auto Loan $5,000 5% $250

2. Pay minimums on everything except the debt with the highest interest rate

You’re going to add any extra money from your budget to your monthly payment on your highest-interest debt. So, in this theoretical example, we have room in our budget to put an extra $200 toward our debt, so we add that amount to the monthly credit card payment.

Debt Total Interest rate Minimum payment
Credit Card $10,000 15% $400 + $200
Personal Loan $2,000 10% $100
Auto Loan $5,000 5% $250

3. When that debt is zeroed out, move on to the next debt

After you eliminate your targeted debt, move on to the debt with the next-highest interest rate, which should be the next item on your list. Do this until you’re debt-free!

Debt Total Interest rate Minimum payment
Personal Loan $2,000 10% $100 + $200
Auto Loan $5,000 5% $250

Creating a budget is key

The key to the debt avalanche method is dedicating your extra money to your highest-interest loan. But without clear budgeting and a plan for how to manage your money, you won’t know how much you can put toward your high-interest debt while still keeping up with your monthly expenses.

To find this number:

  1. Add up your monthly bills and minimum payments.
  2. Subtract that number from your baseline income.
  3. Determine what you’ll need to spend on necessities, such as food, housing, and gas.
  4. Subtract those expenses.
  5. Also subtract any other monetary obligations and a small amount of fun money.
  6. The number you have left is the extra amount you can put toward your debt each month.

It’s a good idea to use a budgeting app like Mint or Dollarbird to track your monthly spending and ensure you stay within your budget so you hit your debt-reduction goals.

Get a side hustle to accelerate debt reduction

The best way to pay down debt even faster is to secure additional income. If you can’t ask for a raise, consider taking on one or more side hustles to earn some extra cash. Any additional money you make can go toward paying off your debt.

Even if you have a full-time job already, there are fun tasks you can do on the weekends to earn extra cash, and you may even be able to earn passive income with just a little bit of effort up front.

If you’re choosing the debt avalanche method, it’s likely that you’re motivated and disciplined, so taking on an extra gig might fit well with your lifestyle. You may even find a side hustle that aligns with your passions and interests so it won’t feel like work.

And once you’re through paying off your debt, you can start putting that extra money into a savings account or spending on something that matters to you.

Consider a 0% balance transfer card

If you want to take your debt reduction to the next level, think about consolidating your credit card debt with a 0% APR balance transfer card. Using a balance transfer card can be an incredibly smart way to pay off debt, and here’s why: When you apply for a new balance transfer card, it typically comes with a 0% introductory APR. That means you could get a break on interest for up to 15 months or longer.

If you move your entire existing balance to your new card, you’ll have more time to pay off your debt without putting a cent toward interest. If you’re only able to move part of your debt to the new card, you’ll still be buying yourself some interest-free time to focus on paying off other higher-interest debt.

Who is the debt avalanche method best for?

The debt avalanche method may be the quickest way to get out of debt, but it’s not for everyone. You need to be a self-motivated individual who can look at the big picture and do what’s best in the long run, even if it can be uncomfortable to have multiple open debts in the short term.

If you need to see successes along the way to motivate you, you might be a better candidate for the debt snowball method, which allows you to pay your smallest debt first.

The bottom line on the debt avalanche method

The debt avalanche method won’t work effectively if you continue to amass more debt, so sticking to your budget is of the utmost importance. Learn to say no to things like dining out and entertainment while you’re paying off your debt. That said, budgeting doesn’t have to be a total drag; find creative ways to save money while still enjoying your time, like hosting a potluck with friends or taking advantage of free events in your community.

And remember: It’s okay to ask for help if you’re struggling. If you need someone to talk to, seek out a nonprofit credit counselor. They’ll work with you to assess your debt and assist you in putting a repayment plan into action.

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Author Details

Lindsay Frankel Lindsay Frankel is a Denver-based freelance writer who specializes in credit cards, travel, budgeting/saving, and shopping. She has been featured in several finance publications, including LendingTree. When she's not writing, you can find her enjoying the great outdoors, playing music, or cuddling with her rescue pup.