Debt Avalanche Method
A debt payoff strategy where you pay minimums on all debts, then put extra money toward the highest interest rate debt first.
What You Need to Know
The debt avalanche method is mathematically the fastest and cheapest way to eliminate debt. By targeting high-interest debt first (typically credit cards at 18-25% APR), you minimize total interest paid.
How It Works:
- List all debts by interest rate (highest to lowest)
- Pay minimums on everything
- Put all extra money toward the highest-rate debt
- Once paid off, move to the next highest rate
Example: Pay off a 24% APR credit card before a 6% student loan, even if the student loan balance is larger. You'll save thousands in interest.
Sources & References
This information is sourced from authoritative government and academic institutions:
- consumerfinance.gov
https://www.consumerfinance.gov/about-us/blog/which-debt-should-you-pay-off-first/
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Related Terms in Debt & Credit
APR (Annual Percentage Rate)
The total yearly cost of borrowing money, including interest and fees, expressed as a percentage.
Amortization
The process of paying off a loan through regular payments that cover both principal and interest.
Annual Fee
Yearly charge for having a credit card—$0 to $550+. Premium cards charge fees but offer rewards that can exceed cost for high spenders.
BNPL (Buy Now, Pay Later)
A short-term financing option that lets you split purchases into installment payments (usually 4 payments over 6 weeks) with little or no interest—if you pay on time.
Balance Transfer
Moving credit card debt from one card to another, typically to take advantage of a lower interest rate or 0% promotional APR.
Balance Transfer Fee
One-time charge (3-5%) to transfer debt to 0% APR card. $5K balance = $150-250 fee. Must save more than fee to make transfer worthwhile.