The biggest advantages of the debt avalanche method are the savings and speed it offers. By tackling your highest-interest debts first, you pay off debt the fastest, while saving as much as possible on interest.
In addition, the debt avalanche gives you a simple, easy-to-follow payment structure. If you've had trouble coming up with a plan of your own, the debt avalanche is a great solution.
There are also some potential drawbacks of the debt avalanche. It could take a while to pay off an account in full, and that can be discouraging. If you're juggling several accounts and having trouble managing payments on all of them, it may be better to start with debt consolidation over the debt avalanche.
Although the debt avalanche works well when you have disposable income, it's not an option if you're strapped for cash. You need to have enough to make all your minimum payments with some funds left over.
Alternatives to the debt avalanche
The main alternative to the debt avalanche is the debt snowball method. It's a similar strategy, except it involves paying off the debts with the smallest balances first. With the debt snowball, you make minimum payments on all your debts, and then put extra money toward the debt with the smallest balance.
While the debt snowball doesn't save you as much on interest, it's popular because it helps people stay motivated. By focusing on debts with the smallest balances, you pay off accounts sooner. Each time you pay off an account, it's a small win that encourages you to keep going.
Depending on your financial situation, you may find that neither the debt avalanche nor the debt snowball are a good fit. For example, if minimum payments are the most you can do, then neither of these strategies will work. Here are a few options that could:
- Debt consolidation: If you apply for a personal loan, you can use it to consolidate your debt -- you pay off all your debts with the loan, then make only your loan payments going forward. Not only does this cut down on the number of payments, but the best debt consolidation loans can get you a lower interest rate and monthly payment amount.
- Balance transfer: A balance transfer is when you transfer a credit card balance from one card to another. Top balance transfer credit cards offer a 0% intro APR, so they give you time to pay down debt interest free.
- Credit counseling: There are nonprofit credit counseling agencies that work with you to help you pay off debt. They can go over your budget with you, come up with a payment plan, and even negotiate with creditors to get you a monthly payment amount you can afford.
Keep in mind that some of your debt repayment options depend on your credit score. Balance transfer credit cards usually require good credit (a FICO® Score of 670 or higher). Lenders can be more flexible with debt consolidation loans, but they use your credit score as one factor in setting your loan's interest rate.
LEARN MORE: Debt Snowball vs. Debt Avalanche
Is the debt avalanche method right for you?
The debt avalanche method is a good choice if you're confident you can stick with it. By targeting accounts with the highest interest rates first, you save more money. That makes the debt avalanche one of the most effective ways to eliminate debt.
If you have a high credit score, you may want to consider a balance transfer credit card or a debt consolidation loan first. Those allow you to reduce the interest rate on your debt. But the debt avalanche is better if you're currently building credit or if you just don't want to apply for another credit card or loan.
See The Ascent's debt snowball calculator to see which debts you should pay off first.