Many people have heard of the increasingly popular concept of the debt snowball: paying your debts off from the smallest to the largest. The personal finance Gods have made it easy (via a theme of snow-related titles) to connect the snowball method to its speedier cousin, the debt avalanche.

Figuring out a debt avalanche plan for your debts is very similar to attempting a debt snowball, with the exception of one thing. I’ll get to that in a minute. There are few housekeeping items that need to be done before you can really crack down on your debt avalanche plan.

Before we start, write down the basics of all of your debts: the type of debt, the lender, how much you owe, the interest rate, how much you need to pay as the monthly minimum, etc. Make sure to add a “new payment” category (again, I’ll explain in a minute).

From here, you will make columns on plain paper or in Microsoft Excel for each of these categories. Now, go against your instinct to look at the amount owed and instead order the debts from highest interest rate to lowest. That’s right! The first loan to be placed on your avalanche list will be the one with the highest interest rate.

Loan #2 on your list will have the second highest interest rate, and you will continue on down until you reach the loan with the lowest interest rate. Fill out the rest of your debts’ information on the sheet.

The extra money you place toward debt repayment will be given to the highest interest rate debt first. It may seem strange, as this debt often is a larger amount due to the nature of its interest; trust me, it will make sense in a minute why this method is so successful.

After adding your extra funds to your “target” debt’s monthly payment amount, pay the others’ minimum payments each month. Once the first loan is paid off, add what you were paying towards it each month to loan #2’s minimum payment and continue down the line. (Therefore, add the minimum payment for loan #1 to the extra amount you can pay, and put this – plus loan #2’s minimum – towards loan #2. Then, this amount will be added to loan #3’s monthly payment once you say bye-bye to loan #2.)

The avalanche method doesn’t give you as instant gratification as the debt snowball method does, as it typically takes longer to eliminate your first debt using the avalanche. The first debt for an avalanche is typically higher due to the interest rate building it up more (most loans are unsubsidized, meaning the interest builds and compounds at a regular interval). However, the avalanche method will save you time and money in the long run, as your debts will be paid off faster and accrue less interest than the snowball method. Don’t let your motivation wane; it will be worth it in the end to pursue this method!

Epilogue: You have to think about you, your determination, and your family’s finances when you choose which method to use. No financial method is right for every person or every business, and debt repayment takes a lot of consideration before finding what works best for you and your money. Just because one method worked for someone with similar debt to yours does not mean it is the best method for you; the best thing to do is try different methods and evaluate the projected outcomes to see what which makes you the most comfortable.

And in the future, stop spending so much money. Budget and you’ll be able to put all this talk about snowballs and avalanches behind you.


William Lipovsky owns the personal finance website First Quarter Finance. His most embarrassing moment was telling a Microsoft executive, "I'll just Google it."

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