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Debt avalanche: A decisive method to pay off credit cards

With the debt avalanche method, you prioritize credit card balances with the highest interest rates.

Gregory Andersen

Managing Editor at Tally

September 16, 2022

Being in debt can be very stressful and cause a great deal of anxiety. It can take its toll both mentally and physically. And, sadly, it’s also incredibly common, with 77% of American households having some sort of debt. 

Credit card debt is easy to incur, but difficult to get out of. It needs to be dealt with as soon as possible because the interest rates can add up quickly. With the average APR now exceeding 20%, credit card debt is more expensive than ever.  

Not all debt is created equal, however. If you have multiple types of debt, each will have a different interest rate. You may have two credit cards, with APRs of 22% and 18%, respectively, as well as a mortgage with an APR of 4.5%. In this case, which debt should you pay down first? 

In the world of financial advice, there are two common strategies for paying off debt: the debt snowball method and the debt avalanche method. Which one works best? Which method will help reduce and eliminate credit card debt? 

This article will focus primarily on the debt avalanche method, which is the optimal method when it comes to reducing your interest costs. 

What’s the debt avalanche method?

The debt avalanche method prioritizes paying off debt with the highest interest rates. You pay off your debts from the highest interest rate to the lowest interest rate, regardless of the balance.

Note: You’ll still make minimum payments on all your debts, but any extra money will go towards the highest-interest debt first

With the debt avalanche method, you save money on interest and, ultimately, pay off your credit card debt faster.

With this strategy, the balance of each debt is ignored — it’s all about the interest rate. It doesn’t matter if your debt is $500 or $5,000 — you simply want to focus on whatever type of debt currently has the highest interest rate. 

How does debt avalanche work?

This strategy asks you to focus on paying off the debts with the highest interest rate. 

For example, say you have the following debt balances:

  • Car loan with a $16,000 balance at 5% APR

  • Card A with a $2,000 balance at 15% APR

  • Card B with a $1,500 balance at 19% APR

  • Card C with a $2,200 balance at 22% APR

In this example, the debt avalanche method would ask you to pay off Card C first, then Card B, then Card A, and finally the car loan. It ignores the balances of the debts, and simply focuses on the highest interest rate (while still maintaining minimum payments on each debt). 

What’s the debt snowball method?

The other main debt payoff method is called “debt snowball.” This method isn’t as efficient from a mathematical point of view, but it might be more motivating for some people. 

The debt snowball method prioritizes your balances. You pay off your credit card debts from the smallest balance to the largest balance, regardless of the interest rate, while paying the minimum payment on the rest.

With the debt snowball method, you see quicker results, which can be motivating. Credit card debt can be frustrating, and those small victories can be empowering. They can help build confidence and keep you motivated to get rid of your debt entirely.

Here’s how it works: You have three credit cards with outstanding balances of $2,000, $4,000 and $6,000. With the debt snowball method, you pay the minimum on your $4,000 and $6,000 credit card balances, then put as much as you can afford toward the $2,000 balance.

By tackling the smallest balance first, you’ll clear the debt faster — and that momentum can have a snowball effect as you move on to address your remaining balances.

Who is the best fit for the debt avalanche? 

The debt avalanche method is typically the best way to pay off debt for those who want to use the most optimal path from a mathematical standpoint. 

Put simply, the debt avalanche method is optimal from a money-saving perspective. Using this strategy will always save you the most money on interest. 

And it will help you pay off your debt faster overall because you’ll have less interest accrue over time. 

On the other hand, the debt snowball method can help you maintain motivation by achieving small wins along the way. If you think you’d be motivated by these small wins, the snowball method may be a better approach for you. 

The debt snowball and debt avalanche methods can both help you achieve your goal. The answer to the debate between snowball vs. avalanche boils down to your individual preferences. 

Advantages of debt avalanche

  • Paying off balances with higher interest rates will save you money over time

  • It’s the best method from a mathematical point of view

  • It will reduce your total debt faster because less interest will accumulate

Disadvantages of debt avalanche 

  • Prioritizing high-interest rates requires patience

  • Motivation can be hard to sustain without immediate results

  • More outstanding balances can cause stress

Debt avalanche in action

The debt avalanche method is always optimal from a mathematical point of view. Here’s an example.

You have three credit cards with the following details:

  • Car loan with a $16,000 balance at 5% APR

  • Card A with a $2,000 balance at 15% APR

  • Card B with a $1,500 balance at 19% APR

  • Card C with a $2,500 balance at 22% APR

With the debt avalanche method, you would first pay off Card A, then card B, then card A — and finally, the car loan. As you make each consecutive payment, your average interest expense and average APR will decrease. Over the payoff period, this can save you a substantial amount of interest. 

Remember that you will still need to continue making minimum payments on all your debts, while using any extra funds to pay down the highest-interest debts first. 

Bottom line

Credit card debt can be debilitating and digging yourself out of debt is a great achievement. The sooner you are able to do it, the better. The small victories that come with the debt snowball method are encouraging, but the debt avalanche method is the most effective and efficient way to pay off multiple credit cards

If you want to pay off your debt the fastest and save as much as possible on interest, the debt avalanche method is the best option. 

Want a simple way to pay off debt? If you’re working on paying off your credit card debt, check out Tally† Tally helps qualifying applicants consolidate credit card balances into a lower interest line of credit. Learn how Tally works here.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.