Debt Avalanche REALLY works to Pay Off Debt

Get out of Debt using Debt Avalance

Do you have too many bills to pay? 

Are you trying to pay down your debt? 

By organizing your bills and debts and using a systematic method to pay them off, you can pay them faster.  A payment system known as Debt Avalanche is my favorite. 

It is simple and it works, so this is now the only method I will use.  Try this easy Four Step method to get out of debt.

How Debt Avalanche Works

For the debt avalanche method, you rank your debts in order of highest to lowest APR rates.  APR being Annual Percentage Rate as in the interest rate you are being charged each month on your accounts.  For example, if you have five bills included in your debt, you pay the minimum payment only on the four lower APR rates.  Next, you focus your attention on the largest possible monthly payment on the debt that has the highest APR rate.  This helps you to get rid of the debt that is costing you the most money in finance charges.

Once you have paid the first debt off, the money that was going towards that bill now moves to pay the next highest APR rate.

Like an avalanche, you start at the top with the highest interest rate and your payments grow larger over time as you pay off debts and your debt balance tumbles downward.  So cool!

In the sample below you will see how over $8000 in debt can be gone in as little as 11 or 12 months depending on the size of your debt payments.   If you are very aggressive about your payment amounts the debt can be paid in even less time.

Get out of debt NOW!

There are a few basic tasks which you should take care of first.  Other than knowing which bills you are paying; you should know the APR rate you are being charged if any.  If you are already paying attention to APR rates, you know that some stores and businesses can try to charge you up to 25% in finance charges.  This is crazy and a sure way to stay in debt longer.

STEP ONE – Organize your debts

The first thing to do is write down all your total debts and what type of finance charges you are paying.  Next, you rank your payments in order, according to APR charge, not the amount you owe.  You plan on paying the minimum payment to each debt.  The debt that has the highest APR rate, is costing you the most money in finance charges each month.  This is the debt you want to focus on and pay off as quickly as possible.


Debt Avalanche – Starting Bills & Payments

Why Debt Avalanche works to pay off debt

STEP TWO – Pay off your first debt!

In this Debt Snowball sample, the largest payment goes to the payment with the highest finance charges.  This is Store CC #1 which charges an APR rate of 24.99%.  By paying $300/month to this debt, the balance can be paid off during the 4th month.  If the payment is increased to $500/month, the debt can be paid off after just two months.

** To keep the calculations simplified, I am not including the finance charges that are added on each month.  Yes, of course, this is a consideration but it will complicate the example.  On my real spreadsheets, when I update the payment info, I am using real numbers.  The real numbers are from my actual credit card and account statements which have the finances charges added on.

When a new bill arrives, I look forward to updating my spreadsheet because all my balances go down.  Before I got good debt control, I was totally cranky when new bills arrived!  If you aren’t already using online banking and bill pay, I highly recommend it.  You can automate some or all of your monthly payments.  More about online banking in this post!

If you have never organized all your bills in order to make a real budget, this method will help you get started!  Regular household bills should not have finance charges but larger bills that you pay over time may.  When you organize your debt for the avalanche method, you don’t need to include your regular monthly bills.  These are bills that most likely have fixed payments and get paid on a regular basis.    The bills and debts to include for a debt avalanche are revolving credit card payments, credit lines or other bills that will be gone once you pay them off.

Debt Avalanche – 2 Months Later

After 2 months using the higher payment of $500, these debts would look something like this.  The highest APR is now paid off.  The focus now moves to paying off Store CC #2.

Debt Avalanche works!

STEP THREE – Focus on the next debt!

You can see, from the table above, that after two months of paying a total of $745 to the debt, the difference is already noticeable.  The total debt is reduced, along with the minimum payments due.  There are now 5 debts to pay instead of 6 debts.  The $300 or $500 payment that went to the credit card that was targeted can now be rolled into a larger payment to the the new #1 debt.  Store CC #2 is now getting the large payment of $345 or $545.  Once again in 2 or 3 months, this debt can be erased from your spreadsheet.  And the new Avalanche payment now goes to the next bill on the list.

Debt Avalanche – 3 Months Later

After another 3 more months using the higher payment again, these same debts would look like this.  Another bill is now paid off and Store CC #3 only has a balance of $150.  The main focus now moves to paying off Visa Card-6263.

Pay off debt using this method!

STEP FOUR – Repeat the payments until your debt is gone!

After another 3 months of making payments of $745/month, two more debts are paid off and just 3 remain.  The largest payment is now concentrated on the visa card with a 2.99% APR.  After approximately 6 months the entire debt can be paid off.

This family will now be debt free!  Not only do they not owe money, they are not being charged high interest rates.  The $745 that was being directed towards paying down and eventually paying off debt can now be used elsewhere.

This is a great time to direct more money into savings accounts!

The mistake I was making for years, is that I was sending large payments to all of my bills and often extra payments as well.  While it might not sound like a “mistake” to pay, more than the minimum on time, each month, I could do better!  I was paying down my debt too slowly, and I still had too many bills to pay.

What was missing was an organized approach to reducing my debt.  I was not systematically eliminating the bill with the highest APR.  The debts with the highest APR rates are the ones that are costing you the most, the longer you have them.  So get rid of them as fast as you can!  Use Debt Avalanche – because it works!

Related Posts:

10 Steps to Smarter Banking – Advantages of Banking Online

Save $1200 per Year  – Simple ways to save money

6 Ways to Earn Extra CashHow to add income

Generating Revenue – Adding multiple income streams

I happen to be a spreadsheet lover.  That didn’t happen until I learned how a spreadsheet really worked.  Many people think they are difficult to work with when in fact, they don’t have to be.  If you are a person that feels “math phobic”, you might feel like you can’t use them, but you can.  A spreadsheet is only as complicated as you choose to make it!

Reduce your stress and your bills by organizing your budget and bills today!  

Please leave a comment and tell readers what works for you!

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  1. I’ve had credit card debt for over ten years now and could never understand why I can’t get “rid” of it.
    I have been doing exactly what you said NOT to do….making large payments on all cards regardless of APR’s! I now have new hope in that trying it your way I’ll make some progress. Thanks!

    1. Carrying too much debt not only can keep you in debt but also causes stress. Then you have a difficult financial situation and potential stress related health issues. Having a plan to fix the problem and pay off debt is the way to go. Good luck!

  2. I love the Debt Avalanche theory! Thank you for sharing this with the world! Wish I had known it 15 years ago. For my Bucket List Project I had to get rid of all my credit card debt and then my law school loans cause I was always hand to mouth with my pay checks and hated it! But about 5 years ago I set up a process of paying off my debts along the lines of what you call the Debt Avalanche and cept for my house, am now 100% debt free from revolving debts or student loans! I live 100% cash and carry and couldn’t be happier! It took a little sacrifice but it was worth it to live so free now!
    I hope everyone follows this method and forever lives debt free!
    Eric || The Bucket List Project recently posted…Gift Guide for the Bucket List AdventurerMy Profile

    1. I wish I knew about Debt Avalanche long ago as well! Congrats on living debt free Eric! I’m far ahead of the game now and closer to being free of payments, except for the house. I’m trying to go out of my way to teach my children all the money lessons I have learned along the way.
      Everyone should manage their money wisely and not rack up debt in the first place.

  3. Great information, currently I have been working the opposite plan. Paying off smallest debt first, then add that payment to next debt. In time, knocking them off one by one. The method you prescribe here makes far more sense. What sort of format do you use for your spreadsheets ? That would help greatly.

    Thank you.

    1. You have been using the Debt Snowball method which is also effective. I think it depends on the total amount of debt you have and the interest rates you are paying. For me, Debt Avalanche was definitely the way to go.
      As far as spreadsheets, I create my own – I am a number & spreadsheet lover. I have been slowly creating a set of editable spreadsheets available as a free download. Hopefully, they will be available in the next few months.
      Good luck with your debt payoff!

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