The Debt Avalanche Method: What is it and when to use it

The debt avalanche method is a way to pay down debt by targeting the balance with the highest interest rate first. With the debt avalanche strategy, you pay off what you owe by prioritising loans and credit card balances with the highest interest rates.

Using this payoff strategy, you make minimum monthly payments on all your debts but pay extra toward your debt with the highest interest rate until it’s paid in full. You then apply your minimum payment from the paid debt plus more, if you can afford it, to the balance that has the next-highest rate, and so on.

Mathematically, the debt avalanche method makes the most sense. That’s because this method minimises the amount of interest you pay, and the approach might help you pay off your total debt faster than other strategies. By saving money on interest, you have more available to put towards your remaining debts.

How the Debt Avalanche Method Works

The strategy is to eliminate debts in order of highest interest rate first, as they are costing you the most overall, rather than the actual balance owed.

How to save on interest using the debt avalanche method:

  • Debt inventory: Gather a list of everything you owe. List the debts in order of the highest interest rate on each balance owed, working down to the lowest amount of interest rate.

  • Pay your minimum: Keep making minimum payments on all of your loans or credit card balances. It is important to make minimum payments against all balances owed to ensure that you stay up to date and avoid any fees or damage your credit file.

  • Pay extra on the highest rate: With any additional money you have available each month, pay extra on the highest interest rate balance. This reduces the amount you owe at that high rate.

  • Building the strategy: Once the borrowing with the highest interest has been paid in full, cross it off the list and redirect the amount you were paying on that balance to the one with the next highest interest rate.

Examples of Debt Avalanching

Here is an example of what the debt avalanche method could look like. Supposing you have three loan and credit card balances:

£2,000 at 15% APR

£4,000 at 18% APR

£8,000 at 20% APR

Firstly, you would create a monthly budget calculating your income and expenditure. This data will provide you with information on what your repayments are each month against each of your debts. Through creating a budget, you will be able to assess the amount of spare cash that you may have each month.

Using the debt avalanche method, you would pay the minimum repayment amount against all three balances, then any spare cash from your budget can be allocated to the balance with the highest interest rate first.

Select the £8,000 balance to pay off first as it has the highest rate of interest applied. Pay the minimum plus any spare cash each month.

Once it has been paid in full, you then apply the amount you were paying to the £8000 balance (at least its minimum) to your monthly payment to the £4,000 balance with the 18% APR.

When the £4,000 balance is paid off, you’d apply its monthly payment to the final £2,000 balance.

So while it may take time to see the impact on the £8,000 debt, you will feel an acceleration in how much headway you are making as time goes one.

When can I start the Debt Avalanche method?


Ask yourself - Are you ready to tackle your debt? If yes then you can get started today.

Should I use the Debt Avalanche strategy?

Is your primary concern finding an approach that will cost you less time and money? In that case, the debt avalanche approach could be right for you.

The strategy will work for you if you have spare cash to make towards your repayments or if you have been paying higher than the minimum repayments on your debt.

A drawback of the debt avalanche method is that if your first balance is of high value you may feel overwhelmed at the prospect of trying to eliminate that debt first. In our example we show the first balance to payoff is £8,000 which may seem like a mountain to climb rather than paying off the lower balance of £2000. You have to keep in mind that your goal is to pay the least interest.

It is a strategy that puts you in control. One of the biggest benefits of using a method like the debt avalanche is that it puts you in more control of your finances.

When you make a plan, you will familiarise yourself with the ideas of minimum payments, interest rates and payoff timelines. You will work to gain a better understanding of your debt, which allows you to take control of how to make the right payments to clear the balance owed. The debt avalanche method is a framework that can get you back in the driver’s seat—and save you money along the way.

It takes discipline and commitment, as even with the best of intentions, it can be easy to revert to making minimum payments, especially if you experience unforeseen expenses. Remind yourself regularly why you are doing this and if you fall off the wagon, get back on as soon as you can. Though you need to remember that skipping a couple of months will make the method less effective and you may want to consider a different strategy if you are having trouble sticking to it.

The alternative debt snowball method starts with the lowest balance and can be easier to stick to than the avalanche method. But it will cost more overall.

Remember: Interest rates go up as well as down and therefore it is important to assess the order of repaying debts on a regular basis.

Debt Avalanche Pros and Cons

Pro: You pay less in interest. Paying off the highest interest rate first saves you money in the long run. In some cases where there is a high balance this can save you thousands of pounds in interest charges over the life of the balance.

Some people find relief in seeing their largest debt reduce faster thereby easing their personal burden of indebtedness.

Con: It can be harder to stay motivated, when it takes longer to pay off your first debt with the balance potentially reducing slowly. Your highest debt could be the highest interest rate, meaning you’re going to pay for a long while before you see it drop off the balance sheet.

Debt avalanche FAQs

Q. Should I stop making payments to my other balances whilst I pay off my highest interest rate first?

A. No. It’s really important to always meet your minimum payments on balances, to avoid penalties, fees, high interest rates and bad credit scores.

Q. Does debt avalanche really work?

A. Yes it does. It allows you to focus on your debt and enables you to see your balances reduce over a period of time. The more you manage to pay against your high balance debt the less interest rate you will pay, and this will save you money in the long term.

It can be challenging in the early months to remain motivated as it can take some time to see the balance start to reduce however sticking with the strategy to allow it time to embed is key to success.

Q. Should I pay my smaller balances off first?

A. This is known as Debt Snowballing and some people are more motivated to see their balance reduce quicker rather than focus on reducing overall charges incurred through high interest. It is personal preference as to what will motivate you to pay off your debt.

Q. What is the difference between the debt avalanche method and the debt snowball method?

A. The debt snowball method is where you focus on paying off the smallest balances first. Both methods have their pros and cons, and the best option for you depends on your circumstances and personal goals.

Whether using the debt avalanche or debt snowball method, if you are using them to pay back credit card debt, you must stop spending on the credit card for it to work – you can’t pay down a balance that is still increasing. You may also need to think more carefully about any balances with 0% special offer periods as you will want to clear this before the interest rate goes up.

Feeling overwhelmed by your debts, or want to manage them smarter? ilumoni gives you personalised insight into your circumstances to help you borrow well. Get the app to see if you could save money by managing your borrowing differently.

If you are struggling with debt and unable to meet your repayments, the following organisations can offer you financial advice and work with you to help.

For money worries, all of the following will help you for free:

AdviceUK 0300 777 0107

StepChange Debt Charity 0800 138 1111

Citizens Advice (England & Wales) England: 08444 111 444 Wales: 08444 772020

Money Advice Scotland 0141 572 0237

Citizens Advice (Scotland) 0131 550 1000

National Debtline 0808 808 4000

Citizens Advice (Northern Ireland)

The Money Advice Service 0800 138 7777

Mental Health helplines:

Samaritans 116 123, email (24/7)

CALM 0800 58 58 58 (nationwide), 0808 802 58 58 (London) + webchat (5pm – midnight daily)

Papyrus HOPELINEUK (under 35s with suicidal feelings) 0800 068 4141 (weekdays 10am-10pm, weekends and bank holidays 2pm-10pm), email, text 07786 209 697

Shout 85258 (24/7 text service)

The Mix (under 25s) 0808 808 4994, text THEMIX to 85258 + webchat (4pm-11pm daily)

Other useful resources:

Mental Health and Money Advice

Mental Health Foundation 020 7803 1101

Mind 0300 123 3393