If you're struggling with high-interest debt, the debt avalanche method may be a good option. By prioritizing paying off debt with the highest interest rate, this strategy can help you get out of debt faster and save money on interest payments.
Let's explore how the debt avalanche method works, how it can help you save money on interest and how it compares to the debt snowball method.
How does the debt avalanche method work?
If you want to use the debt avalanche method, here’s what you need to do:
- List all your debts from highest to lowest interest rate
- Make the minimum payment on every debt except the one with the highest interest rate
- Put as much money as possible toward the debt with the highest interest rate until you’ve paid it off
- Once the highest interest rate debt is paid off, move on to the debt with the next-highest interest rate and repeat the process
How does the debt avalanche method help you maximize savings?
The debt avalanche method can be a powerful tool for repaying debt more quickly and efficiently. Here are a few ways it helps you pay off debt and some strategies that may help you pay off debt even sooner.
1. Make the most of your payments
By making the minimum payments on all your debts and paying more toward the one with the highest interest rate, you may save money in interest.
2. Make extra payments when possible
Any time you have extra money, you may choose to apply it to your debt with the highest interest rate. This can help you get out of debt sooner and save money on interest.
3. Keep track of payments
If you can, automate your debt payments so you may never miss a due date. This may help you avoid late fees and keep you on track.
To get started with the debt avalanche method, list your debts from highest to lowest interest rate. By focusing on high-interest debt, you can free up money in your budget more quickly and you may be able to pay off your debts faster.
Debt avalanche vs. debt snowball: What's the difference?
Both the debt avalanche and debt snowball methods can help you become debt-free, but these options work quite differently.
With the debt avalanche method, you continue making minimum payments on all your debts and focus on paying off the debt with the highest interest rate first. Once the highest interest rate debt is paid off, you move on to the debt with the second-highest interest rate, and so on.
With the debt snowball method, you continue making minimum payments on all your debts and focus on paying off the debt with the smallest balance first. Once the smallest debt is paid off, you move on to the next debt with the second-smallest balance, and so on.
Which method is better: The debt snowball or debt avalanche method?
In general, the debt avalanche method may be a better option if your main goal is to save money on interest, while the debt snowball method may be a better option if you want to feel motivated to keep paying off your debt.
Is the debt avalanche method right for you?
The debt avalanche method can be a useful option for paying off debt, and there are situations when it may make more sense than the debt snowball method.
In general, the debt avalanche method may make sense if:
- You have high-interest debt
- You’re motivated by saving money
- You can handle some financial pressure
- You’re disciplined enough to make extra payments each month
Getting out of debt can feel like a marathon. If you’re able to stay focused and stick to the debt avalanche method, you may not only become debt-free, but you may also save money on interest in the process.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
