Debt avalanche

A payoff strategy that makes minimum payments on every debt and puts all extra money toward the highest-interest balance first.

What it means

With the avalanche method, debts are ranked by interest rate. Extra money goes to the highest-rate debt until it is paid off; then that payment rolls to the next-highest rate, and so on. Balance size does not matter for the order.

Mathematically, this approach minimizes total interest paid and usually shortens the overall payoff time for a given monthly budget. The drawback is that the first debt can take a long time to clear if it has a large balance, which some people find discouraging.

Example

Suppose someone owes $3,000 on a card at 24%, $1,000 on a card at 18% and $8,000 on a car loan at 6%. The avalanche targets the 24% card first, which costs about $60 a month in interest ($3,000 × 24% ÷ 12), while paying minimums on the others.

How it’s used

Paying off several debts with different rates
Minimizing the total cost of getting out of debt
Prioritizing high-rate credit card balances

Strengths and weaknesses

Strengths

Saves the most interest
Often the fastest overall payoff
Simple rule to follow

Weaknesses

First win may take a long time
Can feel slow and hurt motivation
Requires consistent extra payments

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.