Paying off debt: The avalanche method

Back to financial education | Credit & debt

September 18, 2023

5 min read

If you’re in debt, you may be wondering how you can pay it off as fast as possible. Many financial experts consider the avalanche method to be the fastest and most cost-effective way to repay debt. By following this strategy, you may be able to get out of debt quicker and owe less money in interest. In this article, we’ll explain how the avalanche method works so you can decide if it’s right for you.

Here’s what we’re going to cover:

What is the avalanche method?
How does the avalanche method work?
Should I use the avalanche method?
Other strategies for paying off debt
Oportun: Affordable personal loans, no credit history required

Key takeaways

The avalanche method is a debt payment strategy that can help you save money on interest and get out of debt faster.
To use the avalanche method, list all your debts and then sort them by interest rate, from highest to lowest. Then pay them down in order, beginning with the debt that has the highest interest rate.
Choosing a debt repayment method is a matter of personal preference. If one strategy isn’t working for you, you can always try another. The most important thing is to keep going until you’re out of debt.

What is the avalanche method?

The avalanche method is a popular strategy for repaying debt. With this method, you pay off your debts in order of their interest rates, from highest to lowest.

What are interest and interest rate?

Interest is the price for borrowing money, which is paid back to your lender in addition to paying back the amount borrowed or charged to your credit card.

How much interest you owe is determined by the interest rate, which is a percentage of the amount you borrow.

Loans or credit cards with high interest rates will cost you more money over time. That’s because interest is charged each month on the balance that you owe. The sooner you pay off your debt, the less interest you’ll be charged. Owing less interest can help you get out of debt faster.

How does the avalanche method work?

To pay off your debts using the avalanche method, follow these simple steps.

1. List all your debts

Start by making a list of all your current debts, such as loans, unpaid bills, and credit card balances. Include the total amount you owe, who you owe it to, the interest rate, and the minimum monthly payment for each debt.

2. Arrange your debts by interest rate

Next, arrange your debts according to their interest rates, from highest to lowest.

3. Continue making minimum monthly payments

No matter which repayment method you use, it’s important to keep making at least the minimum monthly payment on each debt. If you miss payments, it can hurt your credit score. You may want to set up automatic payments to make sure your minimum payments are paid on time each month.

What is a credit score?

Your credit score is a number between 300 and 850 that gives businesses an idea of how likely you are to make payments on time. The higher your credit score, the better.

4. Pay down the debt with the highest interest rate first

After you’ve made all your minimum payments, use any extra money in your budget to pay down the debt with the highest interest rate. The more money you put toward this debt each month, the sooner you can pay it off.

5. Repeat the process until you’re free of debt

Once you’ve paid off the debt with the highest interest rate, take a moment to congratulate yourself on your success. Then you can move on to the second debt on your list. Keep repeating this process until all your debts are paid.=

Should I use the avalanche method?

Many financial experts recommend the avalanche method because it’s cost-effective. You end up paying less in interest and may be able to get out of debt faster with this strategy.

However, if the first debt on your list is a large one, it could take some time to pay off. You might lose motivation during the process and then feel discouraged about getting out of debt.

If you try the avalanche method and find that it’s not working well for you, you can always switch to a different strategy. The best debt repayment method is the one that you feel comfortable with and that actually helps you pay off your debts.

Other strategies for paying off debt

Here are some other options you may want to consider.

The snowball method

The snowball method is another approach to getting out of debt. With this method, you pay off your debts in order of the amount you owe, from the smallest debt to the largest one.

This strategy allows you to pay off some small debts quickly. As you cross these debts off your list, you’ll get to experience success and feel encouraged to continue repaying your larger debts. Think of it as packing a snowball: You start with a handful of snow and keep adding to it, so the snowball of your success gets bigger and bigger.

Debt consolidation

Debt consolidation is the process of transferring all your debts to a single loan or credit card. The advantage of this method is that you have to make debt payments to only one lender, simplifying how you manage your finances. You may also be able to get a lower interest rate, which will save you money on interest.

Streamlining your payments this way can make it easier to keep track of what you owe and plan for it in your budget. It can also reduce your stress by helping you feel more in control of your finances.

Oportun: Affordable lending options designed with you in mind

Now that you understand what the avalanche method of debt repayment is, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about: