How To Pay Off Debt Using the Avalanche Method

How to pay off debt using the Avalanche method is something that I am exploring with my ‘three’ debt items. I am giving this method a try with my car loan, Klarna and my credit card by paying off the one with the highest interest first. When paying off debt, you need to have a plan and strategy in place because without a plan, you will continue to swim in debt. In the past when I was paying off my debt, I used the snowball method which allowed me to pay off my debt quickly and is still my preferred method for paying off debt.

The money experts say the Avalanche Method is better than the snowball method because it saves you money. But, the problem is, on the surface it doesn’t show your debt decreasing which often does not reflect well for many people. When people are paying off debt, they want to see the balance decrease with every single payment but with the Avalanche method that is not always easy to spot. The can have a negative impact on those struggling to get out of debt when they don’t see any change in the level of debt.

Since technically I am not in debt, I do have items that I need to pay off for them to be totally mine and this is why I wanted to show my readers how to pay off debt using the Avalanche Method so they can have a practical example.

*Disclaimer – I am not a financial advisor, please speak to debt charities if you are in debt.

How To Pay Off Debt Using the Avalanche Method

In case you are not familiar with the Avalanche Method, check out my recent post comparing which debt repayment method is better Avalanche or Snowball. Basically, the Avalanche Method implores a simple strategy where by you pay off the debt with the highest interest rate and paying minimum required amounts to your other debt. The three debt items I mentioned earlier my car loan, Klarna and my credit card each has different interest rates as follows: Car loan 0%, Klarna 18.9% APR and credit card 22.2%. The principles of the Avalanche Method stipulates that I start by paying off my credit card first then Klarna and finally my car loan.

As it stands, the credit card has the lowest balance followed by Klarna and the car has about £10k left to be paid off. This is the one time that the Avalanche and Snowball repayment methods actually align because with the snowball you start with the smallest and work your way up. Using the debt avalanche calculator it has estimated that it would take me approximately 34 months to clear these three debt items on my plate but if I implored the avalanche method, it would take me approximately 18 months and save me about ~£70 in interest charges instead of paying ~£270 in charges.

Paying off the whole debt in approximately 18-months would be absolutely ideal except I have a plan to pay it all off in half the time. Regular readers will know I sell my own budget trackers which I use to manage my finances and track my spending, thanks to the savings I am currently making, I will be able to pay off my debt way earlier than estimated by the Avalanche repayment method. I know this is not the case for most people so I reiterate the importance of managing your money better by using budget trackers for every single expense made and learning your spending habits so you can know how to save money for important things in your life.

So, how does one pay off debt using the Avalanche Method? By knowing and understanding your current financial standing and you can do this by writing down all your debt, your income, fixed expenses to get a clear picture of your spending habits. When I was young, I made a lot of financial mistakes with my money but thankfully those day are in the past and now I manage my money better, I track every single expense and save money by changing my spending habits.

Tips You can Use to Pay Off Debt

Debt is can be crippling especially when you don’t have a handle on your finances or when you are spending more than you make. When I was in debt, I went through a debt cycle thanks to the payday loans that I got myself involved with and its one of by biggest regrets in my financial journey. I had to give up something in order to break the cycle and pay off my debt.

When I was in debt I always thought that if I had more money, I would be able to pay off my debt and have something left over to spend. But the nature of the beast says that even with more money, you will find ways to incur more debt and you will continue to struggle, this is why it is so important to learn how to manage your finances early on and even on your low income. This is something I personally had to do and grateful that when I started making more money, I knew how to spend, save and invest that money for the future.

So of the tips that I implore when I was paying off my debt where:

• Understanding how much I owed – the avalanche methods as you to go even further by not only knowing the debt balance but the associated interest charges associated with each debt.
• Understand your fixed expenses – even creditors know you need to pay off your ‘essentials’ before you can pay them so its important to have a budget tracker that shows your fixed expenses (rent, utilities, food etc).
• Speaking to my creditors – I spoke to everyone I owed money to and informed them on how much I could afford to repay them monthly and we set-up a repayment plan.
• Choose which debt to pay off first – the avalanche method asks you pay off the highest interest first which will save you money in the long run but remember in the short debt it might be demotivating.
• Pay a little more (if you can) – every month I chose what to give up so I could pay off more to my chosen debt. It could be giving up buying lunch at work and instead making my own lunch for a week or a month.
• Speak to someone – debt and money in general is such a personal thing so often people don’t talk about it but it’s so important to speak to someone about you financial situation.

I hope you find these tips helpful as you work through paying off your debt and if the Avalanche Method is not something you want to consider then try the snowball method and start paying off your debt with the smallest amount first.