Debt avalanche

The debt avalanche is a debt repayment strategy that orders debts by interest rate from highest to lowest and directs all extra payments to the highest-rate debt while paying minimums on the rest. As each debt is cleared, the freed-up payment is rolled into the next-highest-rate debt.

How the avalanche works

1. List all debts ordered by interest rate, highest first
2. Pay the minimum on every debt
3. Direct any extra cash to the highest-rate debt until it is cleared
4. Roll the cleared debt’s payment into the next-highest-rate debt
5. Repeat until all debts are paid

Example

A borrower has three debts:

• $1,200 store card at 26% APR, $50 minimum
• $4,500 credit card at 22% APR, $100 minimum
• $12,000 car loan at 7% APR, $290 minimum

With $200 extra each month, the avalanche pays $250 on the store card (highest rate), then rolls payments into the credit card, then the car loan. The order happens to match the debt snowball here, but it would diverge if the largest debt also carried the highest rate.

Why the avalanche works mathematically

• Minimises total interest paid — every dollar of extra payment goes to the most expensive debt first
• Shortens overall payoff time in most realistic mixes of balances and rates
• Most efficient strategy when judged purely by financial outcome

Trade-offs versus the snowball

• Slower early wins — high-rate debts often have larger balances, so the first debt takes longer to clear
• Requires more discipline — the motivation gap can lead to giving up before the first win
• Marginal interest difference is sometimes small — for borrowers with similar rates across debts, the avalanche and snowball produce almost identical results

The avalanche is the right choice when the borrower is comfortable waiting longer for the first cleared account in exchange for paying the lowest total interest.