Debt Avalanche: How-to + Free Worksheet Printable

17.68%.

That is the average interest rate that Americans get slapped with on their credit card debt, according to CreditCards.com.

Interest from any sort of debt is the quicksand of personal finance. The deeper you let yourself sink into it, the harder it is to get yourself out.

Looking for the best way to stop before you’re in over your head? Try tapping into the power of a debt avalanche.

In this post, you'll learn:

• What is the debt avalanche method
• How it compares to a debt snowball
• A step-by-step guide on how to implement a debt avalanche

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What is a debt avalanche?

The debt avalanche is a method of paying off debt that focuses on saving money on interest.

Whenever you repay debt, some of your payment goes towards the balance you owe (the principal) while the rest it goes to the lender as interest payments, to compensate them for letting you borrow their money.

The more money you are paying in interest, the less is going towards reducing your debt. Here is a quick example to demonstrate:

Table 1: $100 payments, with $10 going to interest

Table 2: $100 payments, with $25 going to interest

As you can see, if more of your money is going to interest, your debt balance goes down a lot more slowly.

It will ultimately take you longer to get rid of all your debt, which is why the avalanche method is all about paying as little interest as you can.

Debt snowball vs avalanche

Most financial experts agree that from a money-saving perspective, the debt avalanche is definitely the better way to pay off debt.

That’s because the debt avalanche makes the best use of your money by giving as little of it away in interest as possible.

But how does it compare to the debt snowball method, another repayment strategy that’s wildly popular with Dave Ramsey*’s legion of fans?

Some people claim that the debt snowball method is easier to implement, but we don't think that is true.

Both are pretty much identical in terms of set-up and execution: one just has you paying your debts in order of the balance size, while the other has you paying them off in order by interest rate.

But it’s important to also keep in mind that debt reduction is not just about numbers. It’s about what works for you.

For some people, watching their statement balance go down isn’t enough motivation. They want to see bigger, bolder results or else they won’t feel like they’re getting anywhere and give up.

If that describes you to a tee, you might find that it’s better to pay off your smallest debts first by using the debt snowball method, to keep your money mojo up.

To us, the #1 factor is that you want to keep going, so when it comes to the debt snowball vs avalanche debate, pick whatever is best for YOU.

If using a different method other than the debt avalanche gets better results for YOU, then just do it. Even if it costs you more in interest payments, it still won’t be as pricey as NOT making any strides in paying off your debt.

How to use the debt avalanche method

Setting off your own debt avalanche is pretty simple to do:

Step 1: List out all of your debts, sorted by the interest rate you are being charged from lowest to highest.

Step 2: Mark down the minimum payment owed for each of the debts.

Step 3: Each month, pay at least the minimum payment due on each. If you have any extra money beyond that, always put it towards the debt charging you the highest interest rate.

Step 4: As you pay off debts, the money that would have gone towards those minimum payments are now freed up. Instead of pocketing that cash, apply it towards whichever debt you still have that has the highest interest rate.

Free printable

Looking for a free printable worksheet to help you organize your debt avalanche efforts? We’ve got you covered!