Finance Globe

U.S. financial and economic topics from several finance writers.
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Using the Debt Avalanche Strategy to Pay Off Debt


Getting out of debt is nowhere as easy as it is getting into debt. Many people start out their debt journey by putting a little bit of extra toward all their debts. Even though you may be spending putting a lot of money toward your overall balance, you may not see much progress. That’s discouraging. Having the right debt payoff strategy is essential if you want to be effective in paying off your debt, even if you can't afford to pay much extra toward your debt each month. One of the most popular strategies for paying off debt is the debt avalanche strategy.

What is the Debt Avalanche?

The debt avalanche pay off strategy allows you to pay off your debts in less time than most other methods. Much like an avalanche that occurs on snowy mountains, a debt avalanche allows you to rapidly pay off your debts, compared to other debt payoff methods. Not only will you get out of debt faster, you'll also save money on interest, which is why many people choose the debt avalanche method.

Compared to the Debt Snowball Strategy

Many people have heard of the debt snowball strategy where your debts are paid off in order by balance. You start off by paying the debt with the lowest balance first. By the time you’re done, you’ll end up paying off the balance with the highest balance last.

The debt avalanche strategy is similar. You still pay off your debts one at a time, but with this strategy you pay them off starting with the debt with the highest interest rate first, which isn’t always the debt with the smallest balance. By the time you’re done, you’ll pay off the debt with the lowest interest rate last.

Because you’re paying off debts that have a high interest rate first, you’ll get rid of your most expensive debts first, regardless of whether they have the highest balance or not.

Putting the Debt Avalanche in Action

Start by listing out all your debts, including the balance and the interest rate. Rank your debts in order starting with the one with the highest interest rate. The debt at the top of the list is the one you will focus on paying off debt.

Pay as much as you can to the higher interest rate debt while maintaining the minimum payment all on your other debts. This keeps your accounts in good standing and prevents late fees, interest rate increases, and credit score damage. You might feel like you're not making progress on those other debts, but that's ok. Those debts will get their turn.

Once you pay off the first debt, move to the next one on the list and repeat this process until you're done.

How to Choose the Right Debt Payoff Strategy

When you're comparing strategies, it can be tough to figure out which method is the right one. The method you use to pay off your debt is a personal decision. You choose base your choice on what's important to you and will keep you motivated until you're done. Some people need small victories to stay motivated with a long-term debt plan. For these people, the debt snowball’s advantage of knocking off small balances quickly is a better option. For those who prefer to save money in the long-run and complete their debt plan a few months after, the debt avalanche is a better option.

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Comments 1

Frank on Sunday, 25 November 2018 16:38

Great information here! I would add to seek advice and help when you are under this situation. Professional advice and advice from family/friends can usually give you valuable advice.

Great information here! I would add to seek advice and help when you are under this situation. Professional advice and advice from family/friends can usually give you valuable advice.
Friday, 12 April 2024

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