Paying Off Debt Using The Avalanche Method

The debt avalanche method is a powerful debt repayment strategy that focuses on minimizing the total interest you pay while accelerating your journey to financial freedom. This approach prioritizes debts with the highest interest rates, directing extra payments toward them while maintaining minimum payments on other balances.

As Kanwar Singh, Branch Manager at First Alliance Credit Union, explained on the Good Money Moves podcast, "The avalanche method really helps you save money on the interest." 

The key advantage of the debt avalanche method is its focus on interest rates, which means you end up paying less overall and potentially becoming debt-free faster. This method is especially effective for people with large amounts of high-interest debt, such as credit cards with APRs exceeding 20%.

The main drawback is that it may take longer to see small debts disappear, which can be less motivating for some. Ultimately, the best method is the one that keeps you motivated and consistent, but the avalanche is the clear winner for cost savings.

Guide to Starting Your Debt Avalanche

With the debt avalanche, you start by listing all your debts from highest to lowest interest rate, regardless of the balance size. You then pay as much as possible toward the debt with the highest APR, which reduces the amount of interest that accrues. Once that debt is paid off, you move to the next highest interest rate, creating a cascade effect that accelerates your overall payoff timeline and saves you money in the long run.

The avalanche method ensures you tackle the most expensive debt first, saving hundreds or even thousands in interest over time. As Kanwar noted on the podcast,

“If you’re concerned about how much you’re going to pay out over time, that avalanche method is really the one that’s going to truly save you the most money in the long run." - Kanwar Singh

Avalanche Method: A Step by Step Example

Let’s put the debt avalanche method into action with a real-world example. Suppose you have $10,000 in credit card debt across four cards: Card A: $1,000 at 15% APR, Card B: $5,000 at 12% APR, Card C: $2,500 at 10% APR, and Card D: $1,500 at 22% APR.

Step 1: List your debts

First, you’ll list each of your debts by interest rate, from highest to lowest. You can use this free debt organizing packet to make your list and stay organized during the process. Using our example above, you would prioritize them for payoff like this:

1. Card D: $1,500 at 22% APR
2. Card A: $1,000 at 15% APR
3. Card B: $5,000 at 12% APR
4. Card C: $2,500 at 10% APR

You’re setting balances aside for the moment and zeroing in on interest rates, because the higher the rate, the more it costs you to carry that balance from month to month. 

Step 2: Make payments on all cards

Next, you’ll want to keep making the minimum payment on every card so your accounts stay in good standing and you avoid late fees or potential damage to your credit score. Using our example, that means you’d continue making the minimum payments on Cards A, B, and C.

Step 3: Allocating any extra money

Now comes the most important step in your avalanche payoff plan. Any extra money in your budget should go toward the card with the highest interest rate, in our example, that’s Card D at 22% APR. Keep directing every available extra dollar to this card, month after month, until the balance is completely paid off. 

Step 4: Cascade and repeat

Once the first card is paid off, you’ll roll the amount you were paying on that debt, including the former minimum payment, onto the next card with the highest interest rate. In our example, once Card D (22% APR) is zeroed out, you’ll take all of that freed-up money and apply it to Card A (15% APR), while continuing to make the minimum payments on Cards B and C.

You continue this process, moving down the list, until all of your debt balances are eliminated. Sticking with this debt payoff strategy not only saves you money on interest, it also helps you feel more confident and in control of your financial future.

Staying Motivated and Tracking Progress

Staying on track with any debt repayment strategy can be a challenge, especially if your highest-interest debt has a large balance and takes longer to eliminate. That’s why it’s crucial to set measurable goals, as Kanwar advised:

"When you’re setting your debt payoff goals using the avalanche method, it needs to be measurable. If you can’t measure it, you can’t manage it. Break your overall repayment journey into smaller milestones and celebrate progress as you pay off each card." - Kanwar Singh

Track your balances at least monthly and set reminders for key payoff dates so nothing slips through the cracks. Use simple visualization tools or progress charts to see how far you’ve come, watching those balances drop can be incredibly motivating. The discipline and consistency you’re building now can strengthen your financial health for years to come. 

If you ever feel stuck, know that you’re not alone, many First Alliance Credit Union members have successfully paid off significant debt using these methods.

Watch & Learn: What is the Debt Avalanche Method?

You'll understand how to pay off debt with the avalanche method in this free video from the Good Money Moves podcast.

Finding Expert Support When Paying Off Debt

First Alliance Credit Union is passionate about empowering members to achieve financial wellness. If you’re not sure which debt strategy is best for you or even how to start laying that out, come talk to our team. They can help you figure this out and set a plan in motion, and they’ll be your cheerleader along the way.

Whether you need help understanding your debt options, creating a customized payoff plan, or simply want a supportive partner on your journey, First Alliance Credit Union is here for you. Our team can help you review your finances, set realistic goals, and stay accountable, ensuring that your debt avalanche is as effective and stress-free as possible.

Ready to take control of your debt? Contact our team today!