MODULE 6

3. Debt Avalanche Method

Steps for Debt Avalanche Method

  1. List all of your debts in order of interest rates. Take your list of debts and organize them based on the interest rates only. The highest interest rate should go at the top, and the lowest goes at the bottom. The balance size does not matter when using this method.

  2. Prioritize paying off the debt with the highest interest rate first. Continue making minimum payments on the rest of your accounts, but put extra money towards the debt on the top of your list. Your goal is to pay this loan off the quickest to avoid paying more interest.

  3. Continue this process until that account is completely paid off, and then start putting the extra money you have towards the debt with the next highest interest rate.

PRO:

You’ll save more money in the long run. Prioritizing payments on the debt with the highest interest rate means you’ll pay it off the quickest and have less interest to pay off over time.

CON:

You may not see a lot of progress for a while. Since you’re only focusing on interest rates and not balances, it may take longer to pay off the account at the top of your list. If you’re not careful, this can cause you to lose momentum.

See It in Action

In this video, I’ll show you a real life example of how the Avalanche Method works.

Try It for Yourself

On page 17 of your workbook, list your accounts in order of interest rates. Add the account name, interest rate, and minimum payment amount in the appropriate columns. This should give you a clear view of your situation and show you how to complete this process. If this method seems like the one you want to try, start making extra payments to the debt at the top of your list!