How to Pay Off Debt Using the Avalanche Method
Did you know you could save money by paying off your debts earlier than planned?
I saved over $700 in interest on one loan by paying it off early. There’s a method of attack that focuses on your highest interest debts. When you target your high interest debts first, you’re able to reduce the amount of interest that incurs over the lifetime of your loans.
The Avalanche method is for people that are disciplined enough to stay on track without needing quick wins.
If the idea of paying your lenders less money in interest is enough to keep you motivated through the ups and downs of your debt payoff journey, then this method is the one for you. The Avalanche method is similar to the snowball method, the main difference being the order you pay off your debts.
When using the Avalanche method, you order your debts from highest to lowest interest rate.
You make all of your minimum payments while putting extra towards the first debt on your list. Once you pay off your first debt, you combine that minimum payment with the following minimum payment on your list. You keep rolling your minimum payments into each other until you’re debt free!
Here is what the Avalanche Method would look like in action if you had the following debts:
Credit Card - 19.99% interest with a $30 minimum payment
Bank loan - 7% interest with a $75 minimum payment
Car loan - 6% interest with a $150 minimum payment
Student loans - 2% interest with a $170 minimum payment
Make the minimum payment on all of your debts. Make extra payments towards your highest interest debt until you pay it off.
Roll the minimum payment from your credit card into the next minimum payment. Now you’ll be paying at least $105 towards your bank loan until you pay it off.
Roll the $105 from debt two into the minimum payment of debt three. Now you’re paying $255 towards your car each month until you pay it off in full!
Now you’ve got one debt left, and you’re paying at least $425 a month towards your student loans because you’ve been consistently combining your minimum payments.
The Avalanche method is a great option if you want to pay your lender as little as possible.
Depending on your debt profile, the Avalanche method can get you out of debt faster than any other method. How? Because it lowers the amount of interest that is growing on top of your owing balance!
Whether you’re using the snowball method or the avalanche method, the most important component is your consistency and follow-through. Debt can be overwhelming, and the journey to debt freedom can feel never-ending. Sticking to your plan and rediscovering your motivation will get you out of debt, not just a formulated debt payoff method.
