The Debt Avalanche Method

PUBLISHED Oct 29, 2022, 12:04:54 AM        SHARE

imgOwen Rust

If you have several outstanding debts, things may feel hopeless. Many people may avoid dealing with debt because they feel anxiety and confusion about how to go about paying off debt. Unfortunately, not dealing with debt head-on can lead to even more debt, which eventually can lead to bankruptcy. Fortunately, there are methods for paying off debt!

How to Use the Debt Avalanche Method

The debt avalanche method involves organizing your debts and figuring out which debt charges the highest interest rate. Beginning with the highest-interest debt, you pay more than the minimum payment - which is needed to cover the interest - and begin paying down the principal (dollar amount you borrowed). By paying more than the amount to cover the interest payment, you will eventually repay this debt. Once that debt is repaid, you can contribute that same monthly payment toward the debt with the next highest interest rate.

Debt Avalanche Method Spreadsheet

To begin, you need a spreadsheet to organize your debts and sort them by interest rate. Online, there are plenty of downloadable spreadsheets for the avalanche method. The spreadsheet will help reveal how much you have to pay each month to cover the interest on all debts. Any additional amount you can afford to spend will then be contributed toward the debt with the highest interest rate. By using a spreadsheet to keep things organized, you will feel more confident and be more successful at paying down the debt that is charging you the most interest.

Debt Avalanche Method Calculator

In addition to the spreadsheet, you should use a debt avalanche calculator to figure out which debt has the highest interest rate. The calculator will also help determine how long it will take to pay off the debt at various monthly repayment amounts. If you can afford to contribute $20 more per month, how many months of repayment will be shaved off? Paying as much as you can afford is important, because each additional month of repayment means paying interest on the outstanding principal. Paying the debt off sooner saves you money!

Debt Avalanche Worksheets

If you want to be hands-on and use a printed worksheet rather than a spreadsheet, there are printable PDFs available. On the other hand, if you want your worksheet to be available from anywhere, you can make a copy of available debt avalanche Google Sheets and save them in your Google Drive. A Google Sheet can be useful if there are multiple people who are helping to pay off debt, such as members of a household. The debt avalanche Google Sheet can be shared to all contributors, who can update it with their own monthly contribution amounts.

Advantages of the Debt Avalanche Repayment Method

The key advantage of the debt avalanche repayment method is that it saves money in the long run by focusing on the debts with the highest interest rates first. By going after the highest interest debt first, the total debts are also repaid faster. Going after higher interest debts first is important because of compound interest, where you pay interest on the interest that has already added to the debt! Focusing on debts with lower interest rates can increase the risk of compound interest increasing the debt on higher interest loans.

Disadvantages of the Debt Avalanche Method

It takes a lot of fiscal discipline to use the debt avalanche method! Because you are attacking the debt with the highest interest rate first, your monthly payment will likely be considerable. This means that you should have decent income some savings in the back to handle any emergency expenses. It may also take a long time to pay off the first debt, which can sap your confidence. Sometimes, people give up on the debt avalanche method and go back to making only the minimum monthly payments on all their debts.

Alternatives to the Debt Avalanche Method

The other popular debt repayment method is the debt snowball method. This method involves paying off debts in order of smallest balance to largest balance rather than highest interest rate to lowest interest rate. This method is popular because it helps debtors experience quick victories in paying off some debts, which boosts confidence. Just like the debt avalanche method, the debt snowball method has you allocate the monthly contribution from the debt you just paid off to the next debt on the list.

Debt Avalanche vs Snowball Calculator

If you are unsure which method is right for you, online calculators exist so that you can experiment with either option. By plugging in your debts and their respective balances and interest rates, you can see which method will let you repay debts faster (in chosen order) and with less total money. The calculators let you plug in your available monthly repayment contribution based on your budget.

Consolidate Credit Card Debts

Choosing between the two debt repayment options may be difficult, but there is a third option: consolidation. This involves taking out one larger loan to cover all smaller debts, and then simply making one monthly payment on the larger loan. Of course, this option is only beneficial if the single loan has an interest rate that is comparable - and preferably lower - than your existing credit card debts. This method is often only viable if you have good credit (a credit score of 700 or higher) and are eligible for a lower-interest loan or credit card.

Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
How to Screen for Utility Stocks

Utility stocks are great for generating income and lowering the risk of your stock portfolio. But how exactly do you find the right utility stock to buy? This guide walks through how to use screeners to find the right utility stock.

How to Overcome Debt Problems

From Avoiding Debt to Overcoming Old Debts, a Look at Solutions!

What is Insurance? And How do I Get Affordable Insurance?

Insurance coverage is a funny thing. Everyone seems to have some sort of idea what it is, most think they need it but not urgently, everyone has it for their car, and some have way too much.

What are I Bonds & How do they work?

Series I Savings Bonds (also known as I Bonds) are a type of bond offered by the US government designed to keep pace with inflation.

STAG Industrial: Perfect Time to Buy This 5% Yielding, Monthly Dividend Paying REIT?

Who is STAG Industrial? STAG is a Real Estate Investment Trust (REIT) that specializes in acquiring and managing industrial properties throughout the United States

Dividend Kings In Focus: Kimberly-Clark

Kimberly-Clark (KMB) increased its dividend for the 50th consecutive year at the start of 2022. As a result, it has joined the list of Dividend Kings.

What is a 401(K)?

When you enter the working world or change your job, one of your first matters of business is setting up a retirement such as a 401(k) plan. But what exactly is a 401(k)? Let’s explore the answers to some common questions.

US Economy Is Set To Rebound In Thursday’s Q3 GDP Report

Economic activity for the US for the third quarter is on track to recover in this week’s initial estimate from the government, based on the median for a set of estimates compiled by CapitalSpectator.com

Is BBY A Buy or Sell? Is Best Buy still the Best Buy For Investors?

On one side, the end of the pandemic revived many businesses to the pre-Covid situation; it has negatively affected the growth of other companies. BBY is one of those businesses affected negatively.

How To Pick Stocks; The Professional Way

An Offer To Write a Series of Articles

What Effected The Market This Week

Stock Market Commentary

Greenback Holds Above JPY150, while BOJ goes MIA

The continued surge in US rates and inability of the equity market to sustain gains saw the post-Truss sterling rally unwind amid a broader recovery of the dollar.

Federal Realty (FRT): A Dividend King REIT

The overall Real Estate Investment Trust (REIT) sector has been down a lot year to date.

Why Can’t You Screenshot NFTs?

Are NFTs simply not pictures? Why can't we just make screenshots? Find out more in this article.

Investing in NFTs: Can You Buy NFTs in your Self-Directed IRA?

Although traditional investment options still exist in the stock market, there are many more new types of investments being utilized. One of these new investment options is Non-Fungible Tokens (or NFTs) which are quickly emerging as an investment choice for many investors.

Managing Your Debt and Your Savings

One of the best ways to invest in yourself is to "Pay Yourself First!”. The second best investment is reducing your debt

The Top Electric Utility Companies Ranked Best to Worst

Electric utilities are a great way to add dividend income to your portfolio. We rank them by the best income investments during these volatile times.

Concealing Volatility

Part of my career was based on concealing volatility. I sold Guaranteed Investment Contracts. I helped design and manage several different types of stable value funds. Life insurance contracts get valued at their book value, regardless of what the replacement cost of an equivalent contract would be like presently.

How Soft and Hard Credit Pulls Affect Your Credit

It's practical to learn how to establish credit for your business. However, before you start applying for loans, weigh the costs as well as the impact on your business.

Money Scripts - How we Feel About Money

Ever thought about how you feel about money? Believe it or not, the way you think about money has a significant effect on your ability to grow and build wealth.

Resources for Publishers
Resources for New Investors