When my husband and I got married in 2012 we had collected a large amount of debt between the two of us. We both had a combination of credit cards and student debt that we had been ignoring, however it became clear that we were going to have to address the almost 80 thousand dollars in collective debt that we had hanging over our heads.
The problem that we faced was that we didn’t have much extra money to throw towards debt. Whenever my husband would bring up the idea of paying off debt, I’d immediately get defensive and protest that to do so was impossible. We both had good jobs, but we also had a young child and a lot of different debts that we were trying to keep up with, the biggest being my student loan from when I got my degree. Ultimately it got to a point where we realized we needed to do something. Luckily, my husband found a method that worked for us, and less than 4 years later we were completely debt-free. The method we used? The Debt Avalanche Method.
What is the Debt Avalanche Technique?
The Debt Avalanche Method is a way to pay off your debt, in order of interest rates (from highest to lowest). Using a debt payment plan that tackles debts from highest interest rate to lowest, means that at the end of your payoff, you will have paid less in total towards interest.
To employ this method, you gather a list of all your debts, their minimum payments, and their interest rates. You budget what you need to pay all of the minimum payments, then find an amount that you can use to pay a little extra towards the debt with the highest interest rate. Once this debt is paid off, you take that minimum payment and the extra you started with, and put it on top of the next debt’s minimum payment. You do this until you have all of your debts paid off.
Here’s an example:
- Credit card #1 is $1,000 with an interest rate of 20% and a minimum payment due of $20
- Credit card #2 is $2,500 with an interest rate of 15% and a minimum payment of $30
- Credit card #3 is $5,000 with an interest rate of 10% and a minimum payment of $40
- You have $50 extra to throw towards debt
In this scenario, you would take the extra money you have and apply it towards credit card #1. So each month you would pay off $70 to credit card #1, $30 to credit card #2, and $40 to credit card #3. Once credit card #1 was paid off, you would take the $70 you were paying towards it, and apply it to the minimum payment of credit card #2. At this point you would be paying $100 to credit card #2, and $40 to credit card #3. Eventually when that one was paid off as well, all of your debt payoff money would be going towards credit card #3, paying it off quick. Paying off debt in this manner makes it so that eventually you are paying more towards the principal than the interest, paying off your debt faster.
Does the Debt Avalanche Technique Work?
My family was considering filing for bankruptcy, but once we employed this technique we paid off approximately 80 thousand dollars worth of debt in about 4 years. It works if you manage to stay organized and committed. My family used some free templates from Vertex42 that helped us track our payoff in a way that kept us engaged. For me, seeing how much less I was paying in interest was incredibly motivating.
So if you’re in debt and are looking for a way out, you might want to try the Debt Avalanche Technique. I know for my family, becoming debt-free was one of the greatest things that we achieved.
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