App version: 0.1.0

Avalanche Method: What It Is and How to Use It

Lantern Comp Guide: The Debt Avalanche Method Explained
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated September 6, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Dealing with a lot of debt can be overwhelming, but there are strategies that can help get you back on track. One strategy for paying down debt is the avalanche method. The debt avalanche method is when you pay the minimum amount due on your debts plus an extra payment toward your balance with the highest interest rate.You may continue making debt avalanche payments every month until becoming debt-free. Below, we’ll discuss what the debt avalanche method is, how to use it, and its pros and cons so you can decide if it’s the right strategy for your needs.

Debt Avalanche Method, Explained

The avalanche method is a debt repayment strategy that focuses on paying off the balance with the highest interest rate first. This may not be the largest debt you have, but it is the debt that’s costing you the most money to maintain.The debt avalanche method is when you make minimum payments toward all of your debts plus a recurring extra payment to the balance with the highest interest rate. It may be an effective way for getting out of debt while reducing your overall interest costs.You can use the debt avalanche strategy when paying down all of your debts, including revolving credit and any loans you’ve borrowed as closed-end credit.

How Does the Avalanche Method Work?

Here’s how the debt avalanche works in six simple steps:
  1. Figure out your monthly budget and determine how much you can allocate to debts.
  2. List all of your debts along with their respective interest rates.
  3. List your debts from highest interest rate to lowest.
  4. Make the minimum payment on each debt.
  5. Make an extra payment on the debt with the highest interest rate.
  6. Repeat this process until paying off your debt with the highest rate (then start to pay extra on the next highest rate balance).
When using the avalanche method debt repayment strategy, you may end up saving money by paying off your most expensive consumer loans sooner rather than later.

Avalanche Method Example

Say your highest annual percentage rate (APR) is 28.99% on a credit card that requires a $35 minimum monthly payment on a $3,900 balance. You can pay that debt off faster by using the avalanche method.For example, you could make the $35 minimum payment and an additional $250 payment each month until paying off the debt in full as demonstrated in the table below:
Debt/APRAmount owedMinimum paymentMonthly payment
Debt 1 (28.99% APR)$3,900$35$35 + $250
Debt 2 (24.99% APR)$2,100$30$30
Debt 3 (11.99% APR)$7,000$275$275
Debt 4 (7.99% APR)$11,000$250$250
Once your highest APR balance is paid off, you may begin making extra payments on your next highest APR debt.

Pros and Cons of the Debt Avalanche Method

The below table highlights some of the pros and cons of the avalanche method:
Debt avalanche prosDebt avalanche cons
Pays highest APR debts off fasterSmallest debts may get paid off slower depending on their APRs
May reduce your overall interest costsMaintaining your debt avalanche may be difficult if you lack the motivation 
The avalanche method has some advantages, including the following: 
  • It pays off your highest APR debts sooner rather than later
  • It may reduce your total interest costs
The avalanche method also has some disadvantages, including the following:
  • It may not give you the fastest path to paying off your smallest debt
  • Maintaining your debt avalanche may be difficult if you lack the motivation to see it through

Debt Avalanche vs Debt Snowball

The below table compares the debt avalanche vs. debt snowball method:
Debt avalanche methodDebt snowball method
Focuses on paying off your balance with the highest interest rate firstFocuses on paying off your smallest debts first
May help you pay off debt faster than the debt snowballRepaying your smallest debts quickly may translate into quick victories that may motivate good repayment habits
Paying off your highest APR debts faster may reduce your overall interest costsThe finance charges can add up if you’re only making minimum payments on your highest APR debt

Tips for Using the Avalanche Method

Below we highlight some tips for using the avalanche method:

Be Aware of Possible Prepayment Penalties

Making extra payments on your highest APR debt may minimize your interest costs, but beware of possible prepayment penalties. Some lenders may charge a prepayment penalty if you pay off the loan earlier than scheduled. You may check your loan agreement to see whether it discloses any prepayment penalties.

Stay Motivated

The avalanche method can sometimes feel daunting if your highest APR debt is also your highest balance. While you may not always get a quick victory in eliminating your balances, the avalanche method can minimize your interest costs. Stay motivated and recognize that saving on interest is a victory.

Increase Your Extra Payment Amount

Budgeting more of your income toward extra payments on debt can minimize your interest charges. Reducing your spending on nonessential items and increasing your income with a side hustle may enable you to make larger extra payments on your highest APR debts.Recommended: Budgeting Tips for Beginners

Alternatives to the Debt Avalanche

Here are some alternatives to the debt avalanche method:

Debt Management Plan

A debt management plan can help you repay your debts, manage your monthly payments, and potentially reduce your interest costs. You may enroll in a debt management plan with the assistance of an approved credit counseling agency.Beware that some vendors may not be legitimate credit counselors. The U.S. Department of Justice maintains a list of approved credit counseling agencies by state. Most of the reputable credit counseling agencies are nonprofit organizations that offer services at local offices, online, or on the phone, according to the Federal Trade Commission.Credit counseling may offer financial education and tips on budgeting. You may be able to find nonprofit credit counseling agencies through a university, military base, credit union, or housing authority.

Debt Consolidation

Debt consolidation is another debt management option you may consider. You may consolidate debt with a debt consolidation loan that’s large enough to pay off your older debts. This can simplify repayment since you’ll only have one monthly payment to make instead of many.A debt consolidation loan may be right for you if it reduces your interest charges. A debt consolidation loan is typically a personal loan that has to be repaid over a set term with interest. You may shop around for online personal loans if you need a loan for debt consolidation.

Balance Transfer Card

As an alternative to paying credit card interest charges, you may open a balance transfer credit card with a 0% introductory APR. Depending on your credit limit, you may transfer all of your credit card debt to a single credit card account.Some credit card issuers may offer 0% intro APR for up to 21 months on new purchases and balance transfers. That may give you enough time to pay off your credit card debt before the promotion ends and regular APR begins. 

The Takeaway

Using the avalanche method may reduce your interest costs and open a pathway for becoming debt-free. A key factor is sticking with your budget and making consistent repayments to your creditors. The avalanche method may be right for you if you’re motivated to pay off high-cost debt. If you’re interested in paying off your high-cost debt with a personal loan, Lantern by SoFi can help. Just fill out a simple form and see if you’re eligible for prequalified offers without affecting your credit score.*Lantern can help you compare rates and find debt consolidation loan offers in minutes.

Frequently Asked Questions

How does the avalanche method work?
Are there any drawbacks to using the avalanche method?
Can the avalanche method be used for any type of debt?

About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
Share this article: