Debt Avalanche

« Back to Glossary Index

The debt avalanche is a debt reduction strategy that involves paying off debts in order of highest to lowest interest rates, regardless of the size of the debt.

The idea is to focus on paying off the debts with the highest interest rates first, which can save the debtor money in the long run by reducing the amount of interest that accumulates over time.

Making minimum payments on all debts except the one with the highest interest rate, which is paid off as soon as feasible, is typical of the debt avalanche method.

Once the debt with the highest interest rate is paid off, the money that was being used to pay off that debt is then redirected to the debt with the following highest interest rate, and so forth.

The debt avalanche method can be a more cost-effective way to pay off debt because it prioritizes paying off the debts that are costing the most in interest charges.

However, it may take longer to pay off smaller debts with lower interest rates, which can be demotivating for some debtors.

Ultimately, the choice between the debt snowball and debt avalanche methods depends on an individual’s financial goals, preferences, and circumstances.

« Back to Glossary Index