Avalanche Method

What is the Avalanche Method?

The debt avalanche method is a debt payoff strategy that prioritizes debts by interest rate. You pay off the highest interest rate debts first, which minimizes the total amount of interest you pay over time.

How It Works

1. List all your debts from highest interest rate to lowest

2. Make minimum payments on all debts except the highest-rate one

3. Put all extra money toward the highest interest rate debt

4. Once it is paid off, roll that payment into the next highest rate debt

5. Repeat until all debts are paid off

Example

Say you have three debts:

• Credit Card: $2,000 at 24% APR

• Personal Loan: $5,000 at 12% APR

• Auto Loan: $8,000 at 6% APR

With the avalanche method, you would focus all extra payments on the credit card first (24% APR), even though it is not the largest balance. By eliminating the highest-rate debt first, you reduce the amount of interest accruing each month.

Pros and Cons

Advantages

• Saves the most money in interest

• Mathematically optimal strategy

• Fastest path to being debt-free when looking at total cost

Disadvantages

• May take longer to pay off your first debt

• Can feel slower initially without quick wins

• Requires more discipline and patience

Using Avalanche in BeDebtFree

Select Avalanche as your payoff strategy in BeDebtFree, and your debts will automatically be ordered from highest to lowest interest rate. BeDebtFree shows you exactly how much you will save in interest compared to other methods.