This Repayment Method Crushes Debt One High-Interest Account at a Time

Stack of credit cards
Kwun Kau Tam/Getty Imges

You’ve probably heard of Dave Ramsey’s “debt snowball” method of debt repayment. That helps you tackle debt when you need quick wins to keep you motivated.

The debt avalanche is another wintry metaphor to help you pay down debt. It’s more efficient and can save you money in the long run — but it might be harder work.

What Is the Debt Avalanche Method?

This method focuses on paying off your highest-interest debts first. Think: credit cards, probably. Maybe a loan you got back in the day when your credit wasn’t top-notch.

At the bottom of the list? Likely your federal student loans, which tend to come with favorable interest rates and flexible repayment options.

Also known as debt stacking, this method is great for people motivated by numbers — not so great for people motivated by feelings.

(Pst: If your Myers-Briggs test always produces an “F,” the debt snowball method might be better for you.)

Why Use the Debt Avalanche?

If you can’t tackle all your debts at once, paying off the highest-interest ones first is your smartest move. The longer they sit unpaid, the more debt you’ll accrue and the more this whole thing will cost you in the long run.

Let’s look at an example. (Warning: numbers ahead. But don’t worry; we’ll guide you through this.)

Say you have:

  • A $5,000 loan at 3% interest, and
  • A $5,000 credit card balance at 15% interest, and
  • A budget of $300 a month to pay toward debt.

According to this credit card interest calculator, if you split it and pay $150 toward each debt:

  • The loan will take 2.9 years to pay off and cost $227.23 in interest.
  • The credit card will take 3.7 years to pay off and cost $1,508.52 in interest.

That’s not too bad. But what if you put extra funds toward the high-interest credit card debt, instead?

If you pay $100 toward the loan and $200 toward the credit card balance:

  • You’ll pay off the credit card in 2.6 years and pay $1,032.66 in interest (saving nearly $500).
  • You can then add the $200 you were paying toward the credit card to your loan payment. In eight more months, you’ll pay it off, and your total interest over 39 months would be $306.21.

Using the debt avalanche method to target your high-interest debt would help you be debt-free about five months earlier and save you $396.88 over paying toward each evenly.

Enough with the numbers. Who’s in the mood for a snowball fight?

Debt Avalanche vs. Debt Snowball

tl;dr: The debt avalanche method is usually the fastest and cheapest way to pay down your debt.

The debt snowball method, on the other hand, will cost you more in interest but could keep you motivated to stay on top of your finances. It involves paying your smallest balances off first — so, quicker wins as you knock those debts off your list.

As long as you’re paying off debt in the end, we support it.

If you need help deciding which method is best for you, Debt Payoff Planner app might help. It lets you experiment with “payoff order” — the debt avalanche or debt snowball method — to see how each would affect your debt balances.

For help fitting your debt repayment into your budget, Dave Ramsey’s EveryDollar app includes a “debt” category, where you can list and rank your debts and track your progress toward paying them off.

Debt Payoff Charts

So, playing with numbers every month might not be super fun for you. We get it. Maybe an art project could keep you motivated?

Use this fun trick to keep your debt-payoff goals top of mind and celebrate your progress paying it off: Create debt art.

You know those thermometers you see around town to measure an organization’s fundraiser? They help the organization track and celebrate its progress toward its goal.

Debt art is like that.

You can create artwork that measures your debt as you pay it off. It’s prettier than those giant thermometers, but still helps you focus on your goal.

It’s like adult coloring pages, but with a purpose.

You’ll start with an image, where each section is assigned a payment value. Color in a section as you make payments.

When the image is colored in, you’re debt-free!

Feel free to get creative and create your own — but, in case that’s not your thing, we created some debt art you can download and print for free.

Happy financial freedom!

Dana Sitar is a writer and editor at The Penny Hoarder. Say hi and tell her a good joke on Twitter @danasitar.