Debt can be debilitating. If you’re on a personal finance journey, you may find that debt keeps you from reaching other money goals. But the longer you put off paying off your debt, the longer you’ll let your debt keep you from improving your finances.
If you’re ready to tackle your debt, you may wonder how to get started. If you owe multiple creditors, you may not know what debt to pay off first or how much money to put toward each debt.
Many people follow the avalanche method to reach their debt payoff goals. This may be a good method for you, especially if you have outstanding high interest debt. Find out what you need to know below.
The debt avalanche method explained
The debt avalanche method focuses on paying off high-interest debt first.
If you plan to follow this method, you’ll continue to make at least the minimum monthly payment amounts on all of your debt.
But you’ll put any extra money you have into debt with the highest interest rate. This is a win for your wallet because it saves on interest fees.
For many people, their highest interest debt is credit card debt. The longer you let credit card debt sit unpaid, it accumulates interest-usually at a very high rate. With this debt payoff method, you can reduce the interest charges that you pay.
How to get started using the debt avalanche strategy:
Are you ready to begin working toward paying off all of your debt? Follow these steps:
- Write down all of your debts. List the total amount of money you owe, the interest rate, and the minimum amount due for each account.
- Calculate how much extra cash you can put towards debt. Next, you’ll want to review your budget and determine how much extra money you can put toward debt. This number won’t be the same for everyone because we all have different financial situations.
- Pay the minimum amount due on all debts except for the highest interest rate. Don’t skip payments or pay less than the minimum amount due. Continuing to make the monthly minimum payment on low interest debts will benefit your credit score and credit report.
- Put the rest of your extra money towards your highest interest debt. Doing this will help you save money on total interest charges.
- Continue the process. Once you pay off your high interest debt, move on down your list. Pay minimum amounts due for lower interest debt and put the rest of your extra cash towards the next highest interest debt.
What is the benefit of this debt repayment strategy?
Does the debt avalanche method work? Many people choose the debt avalanche strategy because it saves money in the long run. High interest debt can be costly and will only grow if you ignore it. By paying it down faster, you can save yourself some money.
Some people struggle with motivation with this debt payoff method. If you have a large amount of high interest debt, you may feel like you’re making small strides to pay it down and may sometimes feel discouraged. That’s okay, and you’re not alone.
One way to motivate yourself is by tracking your progress and finding ways to celebrate the small wins you’re making.
Here are a couple of ways you might choose to do this:
- For some, that may look like illustrating their debt payoff successes with a fun chart in a planner or using a spreadsheet to track wins.
- For others, that may look like setting small goals and rewarding themselves with an affordable, fun treat when they reach them – like a movie and pizza night at home or getting a cup of coffee and a pastry from their favorite coffee shop.
Find what works for you as you continue to keep your personal finance goals top of mind as you work toward your debt reduction goals. You can do this. I believe in you.
There are other options if it doesn’t feel like the debt avalanche strategy is good for you. Another method to consider is the debt snowball method.
We’ll discuss additional debt payoff methods in future pieces and other tools you can use to avoid paying additional debt while you tackle your debt to make your debt repayment strategy goals a reality.