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Debt Avalanche Method - How Does it Work?

A thoughtful man sitting at his laptop researches the benefits of the debt avalanche method to pay off debts.

The debt avalanche method offers a structured way to pay down debt quickly while reducing interest charges. Here’s how it works.

Harnessing the Debt Avalanche Method

Chipping away at significant debt is always an uphill struggle, especially when high-interest rates keep your balance piling up as fast as you try to pay it off. The debt avalanche method is an aggressive approach to paying down debt designed to help you get out from under your high-interest loans sooner. Let’s take a closer look.

What Is the Debt Avalanche Method?

The debt avalanche method aims to pay back significant debt sooner by prioritizing payments of your highest-interest loan first. By doing so, you’ll pay less in interest rates over time, and you can often clear your debts faster. While progress can seem slow at first, you’ll free up more and more money over time to pay back your remaining loans.

The debt avalanche method offers a structured way to pay back your unsecured debt so you can start building long-term financial stability.

How Does It Work?

Imagine you have $700 available every month to pay down your debt, and you owe outstanding balances on three separate loans:

  • $1,500 on a credit card with a 20% annual percentage rate (APR)

  • $2,000 on a second credit card with an 18% APR

  • $700 on a personal loan with a 5% APR

Under the debt avalanche approach, you would first make minimum required payments on all loans and then devote the remaining balance to the highest rate loan. Assuming a $50 minimum payment on each loan you would proceed as follows:

  • Pay $550 a month to pay off the credit card in three months

  • Pay $600 a month to pay off the second credit card within five months

  • Pay $650 a month to pay off the personal loan in two months

In each case, you benefit by being able to add the money saved on the minimum payment to your payment on the next loan.

Debt Avalanche Pros and Cons

While effective, the debt avalanche method may work better for some people than for others.


The debt avalanche method is effective because it:

  • Reduces the amount you pay on interest

  • Can help you pay back loans faster

  • Rewards consistent payments by freeing up more cash


On the other hand, the debt avalanche method:

  • Takes discipline and consistency

  • Requires a steady monthly income and controlled expenses

How to Start an Avalanche

Here’s a step-by-step guide to getting your debt avalanche system set up.

1. Cover Your Expenses

First make sure you can pay your mortgage, utilities, bills, and cover all your necessary expenses including groceries, householder expenses, maintenance, and likely medical costs.

2. Set Up an Emergency Fund

Next, set aside a little money each month to establish an emergency fund. Making consistent payments on your debt avalanche won’t work if you are interrupted by unexpected costs such as car repairs, a medical emergency, or a temporary loss of income.

3. Decide How Much You Have Available to Pay the Debts

From what is left, decide how much you want to spend on paying down debt. While high-interest debt should be your priority, you may feel you need to divert some funds to savings or a retirement account. The remaining amount is what you have available to pay down debt.

4. Make Minimum Payments on All Accounts

Now, set aside minimum payments for each of your debts to prevent any defaults or extra penalties. The idea is to minimize additional charges on your accounts.

5. Allot the Remaining Funds to the Highest Rate Debt

Pay the remaining money to your highest interest rate debt, usually starting with credit cards and working down to student or personal loans. Once one source of debt is paid down, take the extra cash and add it to the minimum payments you’re making on the next highest loan.

You’ll have even more money available as you eliminate both balances and interest charges!

Debt Avalanche vs. Debt Snowball

The debt avalanche method is a powerful way to structure payments on your loan to eliminate the high-interest charges that cost you over time, but it’s not ideal for everyone, mainly because you need to be able to keep paying consistently for little reward—at least at first.

If you might be more motivated by seeing immediate progress on your debt bottom line, the debt snowball method might work better. By paying down your lowest balances first, you eliminate sources of debt while steadily building up a snowball of available cash to tackle your higher-balance loans.

In the example given above, under the debt snowball approach, you would first pay off your $700 personal loan within two months.

While you would pay more in interest charges and take slightly longer to clear your loans, for many people, remaining motivated to pay down debts can be just as valuable—especially if you do not earn a steady income or have unpredictable expenses.

Manage Your Debt Better With Telcoe Federal Credit Union

However you choose to tackle your debt repayments, it often makes sense to consolidate your highest-interest debts, such as credit cards, into a single personal loan. You can dramatically lower your interest rate and simplify your payment schedule, so you can start building toward lasting financial stability.

At Telcoe Federal Credit Union, we offer our members a range of flexible and affordable loan products to save you both time and money. We offer:

  • Secured and unsecured personal loans

  • Back-to-school, Christmas, and vacation loans

  • Credit builder loans

With a quick turnaround and friendly local service, why pay higher rates when you can move your loans to Telcoe Federal Credit Union?

Click below to learn more about using a personal loan to help better manage your high-interest debt.


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