What is the debt avalanche strategy?

The debt avalanche method involves aggressively paying off your highest interest debt — while making the minimum monthly payments on the others — before moving on to the next highest.

This method helps you pay off your debts faster and at a lower cost, because you reduce your largest interest charges and associated fees.

How does the avalanche method work?

The debt avalanche method involves tackling your debts with the highest interest rates first.

Let's say you have a $30,000 credit card balance at 29% APR, $20,000 in student loan debt at 6% interest, and a $1,200 hospital bill that's interest-free.

Starting a debt avalanche, you would aim to pay off the credit card bill first with as much as you can squeeze out of your budget, and pay only the minimums on the other outstanding bills. Once your credit card is paid off, you'd move on the student loan, followed by the hospital bill.

Although it would take a lot longer to pay off the credit card than the hospital bill, you would save a substantial amount on interest in the long run.

Avalanche vs. snowball: how do they compare?

To compare debt avalanche and the debt snowball strategy, it's important to understand that the debt snowball involves starting with the lowest interest balances first — while making minimum payments on the rest.

Recycling the above example, the debt snowball method starts by paying off the interest-free hospital bill, followed by the $20,000 student loan debt, and ending with the $30,000 credit card debt (which has the highest interest).

If you need short-term victories to motivate you, you’re a debt snowball candidate — but even though the hospital bill is an easy win, $30,000 at 29% APR will compound faster than you'd like.

Is the debt avalanche method right for you?

The debt avalanche method isn’t for those who seek instant gratification. Bigger debts take longer to pay off, and it may take a while before you start seeing any meaningful progress.

It takes patience and self-discipline to stick to the debt avalanche strategy.

No matter which strategy you choose, make sure you create a budget you can stick to while paying off your debts — and set aside whatever you can in an emergency fund for surprise expenses.

About the Author

Sarah Cunnane

Sarah Cunnane

Staff Writer

Sarah Cunnane is a staff writer at MoneyWise. She is a writing and marketing professional with an Honors Bachelor's degree in English and Creative Writing from the University of Toronto.

You May Also Like

Why It's OK to Use Cash During the Pandemic, Even if the Stores Don't Like It

Fear of spreading COVID-19 has some retailers refusing to take coins and bills.

With Mortgage Rates Bottomed Out, It's High Time for Homeowners to Take Advantage

If you haven't looked into refinancing yet, you're missing out on a major gift.

How Does Life Insurance Work in Canada?

Here's what you need to know, including how to choose the right policy and how to apply.

Bank of Canada Pushes Ahead With Record-Low Interest Rates

The central bank is keeping the pressure on as it looks toward recovery.