Have you ever felt overwhelmed by your debt and unsure where to start with your debt repayment? You’re not alone. In fact, there are specific debt repayment plans that you can implement to make the process easier, faster, and more cost-efficient. The debt avalanche is one such strategy.

What is the Definition of Debt Avalanche?

With a debt avalanche, you commit to paying off loans with the highest interest rate first, thereby cutting down on interest costs over the entire life of the loan. While paying off your high-interest loans, you still have to be aware of the minimum monthly payments on your other loans. After you’ve paid off your loan with the highest interest rate, you tackle the loan with the next-highest interest rate, and so on and so on. Eventually, you’ll find yourself entirely debt-free! We’ll go through how to use a debt avalanche in this post, as well as how it differs from a debt snowball. 

How to Start a Debt Avalanche 

First things first. You’ll need to figure out how much total money you can dedicate toward debt repayment each month. Keep in mind that you still need money for your mortgage, transportation, insurance, food, etc. Then, you’ll want to make a list of all your loans and their respective interest rates. From there, order by the interest rate (highest to lowest) and make sure with your lender that you won’t be penalized for making early payments (we offer no penalties for early payments on our personal loans). 

Now that the easy part is done, you’ll need the discipline and commitment to follow through on your plan. If you have auto-payments set up, you may need to go in and adjust to make sure you’re making the lowest monthly payment on your smaller interest loans and the highest possible payment (within your budget) for the highest interest one. Something else to consider is that if a promotional interest rate ends, you may have to go in and restructure your list to make sure you’re prioritizing the right loans. 

The tricky part will come when unexpected expenses come up, such as the need for a new AC unit or car repair. Unfortunately, many of these circumstances are unavoidable. You can be prepared for these situations, however, by having a six-month emergency fund saved up prior to your debt avalanche plan. 

*Note that you can also organize your loans by APR since it will factor in any additional fees that are charged. 

Debt Avalanche vs. Debt Snowball

You may have heard of the tactic ‘debt snowball’ before, but keep in mind that it is a different accelerated repayment tactic altogether. With a debt snowball, your goal is to pay of loans from the smallest principle to the largest principle. So if you had one loan that was $3,000 with a 4% interest rate and another that was $3,000 with a 7% interest rate, you would prioritize paying off the $3,000 principle loan first (despite the smaller interest rate). 

Though this method costs more over the long run (your interest continues to rack up on your larger loans), you have more motivation when you can quickly pay of those smaller loans and celebrate.  Despite that, the Debt Avalanche method is universally agreed to be the fastest and cheapest way to get out of debt. 

You can use this debt payoff calculator from Nerdwallet to determine which strategy would work best for your specific loans. 

Personal Loans and Debt Avalanche 

If you decide that you want to take out a personal loan to help you with your debt avalanche repayment strategy, be sure that you’re getting a good interest rate on your loan. If a personal loan interest rate is going to be your highest, it’s not worth taking one out to cover the repayment of other loans. 

However, if you have a $3,000 credit card loan with a 20% interest rate and can take out a personal loan of the same amount with a lower interest rate than 20%, it’s well worth it to shift around some of that debt. You can apply for a personal loan today, get approved within minutes, and see money in the bank within hours.