Debt Avalanche Calculator

How does the Debt Avalanche method work?

The Debt Avalanche method is a mathematically optimized strategy for paying off debt. It focuses on targeting the debt with the highest interest rate first, regardless of the balance size, while maintaining minimum payments on all other obligations. This approach ensures you pay the least amount of interest over the life of your debt.

Interest Savings = Balance × (Higher Rate - Lower Rate)

Debt Avalanche vs. Debt Snowball

The primary difference lies in motivation versus mathematics. The Avalanche method is the most cost-effective, saving you the most money on interest. In contrast, the Snowball method prioritizes the smallest balances first to build psychological momentum through quick wins, though it may result in higher total interest costs.

Example: Avalanche in Action

Consider two debts: a $5,000 credit card balance at 22% APR and a $2,000 medical bill at 10% APR. Even though the medical bill is smaller, the Avalanche method directs every extra dollar to the credit card first because every dollar paid there saves you 12% more in interest compared to the medical bill.

Step-by-step breakdown:

• List all debts from the highest interest rate to the lowest.
• Pay the minimum on all debts to avoid late fees and credit damage.
• Direct all remaining monthly debt-payment funds to the 22% interest debt.
• Once the 22% debt is paid in full, roll that entire payment amount into the 10% interest debt.

Frequently Asked Questions

How does this impact my credit score?
The Avalanche method improves your credit score by reducing your overall credit utilization ratio. Because high-interest debts are often revolving credit cards, paying them down quickly has a significant positive impact on your score.

When should I switch to a different strategy?
If you feel burnt out or unmotivated because your highest-interest debt is very large and taking months to pay off, switching to the Snowball method to clear a small balance can provide the "win" needed to keep going.

Should I pay off debt or save first?
Generally, if your debt interest rate is higher than the interest you would earn in a savings account (e.g., credit cards at 20% vs. savings at 4%), it is mathematically better to pay off the debt first.