According to a recent study, about 30% of Americans are burdened by up to $5,000 in debt. Between 1% and 6% of study participants (around 14 million people) reported that they carry at least $10,000 in credit card debt (GOBankingRates, 2022). My husband and I can attest to the fact that debt can be a major source of stress. If you are like us and millions of other Americans who carry debt, keep reading about a proven strategy we are implementing to become debt free In 2023.
You’ve probably heard of the “debt snowball” method that focuses on paying off your smallest debt balances first. One strategy you might not have heard of is the “avalanche method”. The avalanche method is a great way to regain financial stability and freedom by focusing on paying off your high interest debts first. By tackling debts in this fashion, you can save money on interest in the long run and work more efficiently towards becoming debt-free. So don’t let debt hold you back any longer – start a “debt avalanche” and take control of your finances today!
Here are 5 simple steps to get you started.
How to Start Your “Debt Avalanche”
Step 1: Gather all of your debt information
The first step in the avalanche method is to gather all of the information about your debts. This includes the creditor, balance, and interest rate for each debt. This will allow you to see the full picture of your debt and understand which debts are costing you the most in terms of interest. One easy way to track your debt repayment progress while implementing your “Debt Avalanche” is to use a debt repayment tracker. A debt repayment tracker helps you stay organized and on track. You can find free and paid versions of debt repayment trackers online. If you are interested in using the one I created, click the link to visit my Etsy shop of simple and minimalist printable financial worksheets.
Step 2: List your debts in order of interest rate
Once you have all of your debt information gathered, the next step is to list your debts in order of interest rate, with the debt with the highest interest rate at the top of the list. This will help you prioritize which debts to focus on paying off first.
Step 3: Make minimum payments on all debts
While you are working on paying off your debts, it is important to continue making at least the minimum payments on all of your debts. This will help you avoid late fees and damage to your credit score.
Step 4: Make extra payments on the debt with the highest interest rate
After you have made the minimum payments on all of your debts, the next step is to focus on paying off the debt with the highest interest rate. By paying off this debt first, you can save the most money on interest over time. Make extra payments on this debt each month, in addition to the minimum payment, until it is paid off.
Step 5: Repeat until all debts are paid off
Once the debt with the highest interest rate is paid off, move on to the next highest interest rate debt and repeat the process. Continue this pattern until all of your debts are paid off.
Advantages of the Avalanche Method
There are several advantages to using the avalanche method for paying off debt. These include:
- Can save you money on interest: By focusing on paying off high interest debts first, the total amount of interest paid over time can be reduced, potentially saving the borrower a significant amount of money.
- Can help you pay off your debts faster: By prioritizing the debts with the highest interest rates, you can pay off your debts faster and be debt-free more quickly.
- Can be motivating to see progress: Seeing progress as you pay off each debt can be motivating and help you stay on track with your debt repayment plan.
Disadvantages of the Avalanche Method
There are also some potential disadvantages to the avalanche method. These include:
- May not be as emotionally satisfying as the snowball method: The snowball method involves paying off smaller debts first and can be more emotionally satisfying as debts are paid off more quickly. The avalanche method may not provide the same sense of accomplishment as the snowball method.
- May not be as effective if you have a large number of small debts: If you have a large number of small debts with low balances, the avalanche method may not be as effective as the snowball method. This is because the avalanche method focuses on paying off debts with the highest interest rates first, which may not be applicable if you have a large number of low balance debts.
Tips for Making the Avalanche Method Work for You
There are several things you can do to make the avalanche method work for you:
Automate your payments
One way to make the avalanche method more effective is to automate your payments. By setting up automatic payments for your minimum debt payments, you can ensure that you are making on-time payments each month and avoid late fees. This can also help you stay organized and make it easier to focus on making extra payments on your highest interest debt.
Set up a budget
Having a budget in place can help you stay on track with your debt repayment plan and make sure you have enough money to make your minimum payments and extra payments on your highest interest debt. A budget can also help you identify areas where you can cut back on spending and redirect those funds towards paying off your debt.
Find ways to increase your income
Increasing your income can help you have more money available to put towards paying off your debt. This could include taking on extra work or freelance projects, starting a side hustle, or negotiating for a raise at your current job. Any additional income can be used to make extra payments on your highest interest debt and speed up the process of becoming debt-free.
Consider consolidating your debts
If you have multiple debts with high interest rates, you may want to consider consolidating your debts into a single loan with a lower interest rate. This can simplify your debt repayment plan and potentially save you money on interest. There are several options for consolidating debt, including balance transfer credit cards, personal loans, and home equity loans. It is important to carefully consider the terms and fees of any debt consolidation option and make sure it is the right fit for your financial situation.
Conclusion
The avalanche method is a strategy for paying off debt that focuses on paying off debts with the highest interest rates first. By following the steps of the avalanche method and implementing the tips outlined in this article, you can take control of your debt and work towards becoming debt-free. It may take some time and effort, but with determination and a solid plan in place, it is possible to pay off your debts and regain financial stability.
Click the button below to read my blog post about the Snowball Method of Debt Repayment.
References:
GOBankingRates. (2022, December 30). Jaw-Dropping Stats About the State of Debt in America. https://www.gobankingrates.com/credit-cards/advice/jaw-dropping-stats-about-state-of-credit-card-debt-in-america/
