What is the debt avalanche method in simple terms?

The debt avalanche method is an approach to repaying your debts where you focus on paying off debts that have the highest interest rate first. You pay the minimum payment on your debts and then use any spare money to pay towards the debt with the highest rate of interest. This is usually the quickest and cheapest way to clear your debts without taking out any more credit. By paying the debts with the highest interest rates first, you should pay less in interest than you would if you used a different approach.
 
The avalanche method  should only be used if you can afford the minimum payments on your debts. If you are struggling to meet payments or have already fallen behind, get free expert advice from National Debtline instead. If you cannot afford your monthly payments, it may be possible to get interest and charges frozen. In some cases, you may be able to have your debts reduced or written off.

How the debt avalanche method works step by step

The starting point for dealing with your debts should always be creating a realistic budget for your household. Check your bank statements and bills to make sure your budget is accurate. Don’t forget to include amounts for occasional costs such as car and home repairs, gifts and clothing. It can be a good idea to also set some money aside for unexpected emergencies. If you are not sure if your spending is realistic, get free help from a National Debtline adviser.
 
Any money left over after you have paid your bills and other living costs can be used to repay your debts. Make sure you have arrangements in place to meet the minimum payments due on each of your debts. Put the surplus money from your budget towards the debt with the highest rate of interest. Keep doing this as each debt is paid off, always switching to the debt with the next highest interest rate after paying a debt off.
 
If you find you haven’t got any money left over on your budget or haven’t got enough money left to meet all your minimum payments, do not use the avalanche  method. Speak to a National Debtline and get free expert advice about debt solutions instead. To find out more about the solutions that may be available, see our Ways to clear your debt guide.

Example of the debt avalanche method

Here’s how you would use the avalanche method if you had the following debts.

The total of the monthly minimum payments here is £235.

• If you had £300 left over on your budget, you would have £65 spare after paying the £235 of minimum payments.
• The spare £65 would be paid towards the catalogue debt as this has the highest interest rate.
• So, you’d pay £100 (£35+£65) rather than just £35 towards this debt.

Once this debt is cleared, you’d start paying off the credit card debt.

If you pay the minimum payment on the credit card debt above, it would take around four and a half years to clear. If you were able to pay £200 a month instead, the debt would be cleared in around one year and eight months, and you would have saved well over £1,000 in interest payments. So, focusing on clearing high-interest debts first could save you a lot of money.

Why the debt avalanche method can save money

The benefit of the avalanche method is that it is usually the quickest and cheapest way to repay your debt without further borrowing.

What are the drawbacks of the debt avalanche method?

You can sometimes save more money by shopping around for better deals, such as credit cards with interest-free periods. But remember, you usually have to pay a fee to move a balance to a different card. Make sure you factor this into the cost of repaying your debts. You may also not get the best deals unless you have a good credit rating.

Debt avalanche vs debt snowball method

The debt snowball method is a different approach to repaying your debts. With the snowball method you instead choose to use any spare money to repay your smallest debt first. This will usually be more expensive than the avalanche method, as more interest can build up on higher-interest debts that haven’t been repaid.

If you’ve tried to clear your debts before but not been able to keep on track, the snowball method might appeal. As you’re paying the smallest debts first, you’ll be able to start closing accounts sooner which can give you a sense of progress.

See our article about the debt snowball method to find out more.

Tips to make the debt avalanche method work

The key to repaying your debts is having a realistic budget and then sticking to it.

• Complete your budget carefully. If it isn’t accurate, you won’t be able to stick to it.
• Budget an amount for costs that come around occasionally. For example, insurance policies and Christmas gifts.
• Avoid taking out more credit.

What to do if you cannot keep up with payments

If you cannot afford the payments on your debts, you should be looking at debt solutions instead. See our Ways to clear your debt guide for an overview of the solutions that might be available. Call National Debtline to get free advice to find the best solution for you.

Get free debt advice

National Debtline has been giving free professional debt advice for over 30 years. Call 0808 808 4000 to get expert guidance to help you deal with your debts.