Finance

How to Pay Off Your Debts Fast


Stressed woman sitting at a desk in front of her MacBook.
How to get out of debt using the debt avalanche method.

Get Out of Debt With the Debt Avalanche

Carrying debt can be a major financial burden and a source of stress.

Paying late, missing payments, or defaulting on your debts can have horrible consequences. Getting in over your head with credit card debt or other financial obligations subjects you to late fees, higher interest rates, a lower credit score, non-stop calls from creditors, wage garnishment, and legal problems.

Of course, you feel stressed out with all that hanging over you on top of the pressures and responsibilities of everyday life. Stress can lead to serious health problems, from insomnia to depression and heart disease.

That’s why it’s important to get out of debt and stay debt free. The debt avalanche strategy can help you pay off your debt balances quickly.

Paying Off Debt Fast

If you’re carrying student loans, credit card debts, medical debt, and other personal loans, how do you prioritize? If your goal is to get out of debt as quickly as possible, which should you pay first?

There are multiple approaches to paying off debt you can take, each with benefits and drawbacks. The debt avalanche method, or debt stacking as it’s also called, is a popular debt repayment strategy that aims to minimize the interest you pay and get you out of debt faster.

What Is the Debt Avalanche Method?

The debt avalanche method is a strategy for paying off debt that focuses on paying the debt with the highest interest rate first. This method works because paying off high-interest debt first is more efficient and cost-effective. The longer you carry debt balances, the more interest you pay.

How To Use The Debt Avalanche Method to Get Out of Debt

Here’s how you can get started with the debt avalanche strategy:

  1. List all your debts, including the creditor, balance, and annual percentage rate for each.
  2. Sort your debts from the highest interest rate to the lowest.
  3. Make the minimum payments on all your debts except for the one with the highest interest rate.
  4. Focus on paying off the debt with the highest interest rate as quickly as possible.
  5. Once the debt with the highest interest rate is paid off, move on to the debt with the next-highest interest rate and continue until all of your debts are paid off.

Debt Avalanche Example

Here’s a sample debt avalanche spreadsheet with all non-mortgage debt sorted from highest interest rate to lowest interest rate:

Debt avalanche spreadsheet done in Google Sheets.

You’ll pay the debt with the highest interest rate first, then move on to the next-highest rate, and continue until all balances are paid off. Depending on the type of debt you carry, your largest balances may be up first when you start your debt avalanche.

Does the Debt Avalanche Work?

Using the debt avalanche method will get you out of debt and save you money over time on interest. However, it may not be the best option for everyone. The avalanche method requires discipline and a willingness to focus on paying off your higher-interest debts first.

Paying more than the minimum on your highest-interest debt is the key to getting the avalanche started. The extra funds have to come from somewhere.

That might mean making deep budget cuts or generating extra cash by working more hours, getting a second job, or starting a side hustle. Making drastic lifestyle changes or earning extra money for your debt repayment plan might be difficult or unsustainable over a long period.

Staying motivated and on track until all your outstanding debt is paid off is challenging enough. If your most expensive debt is your highest balance, it could be quite a while before you pay off your first debt. You may find that discouraging.

Debt Avalanche Method Pros and Cons

The debt avalanche method will get you out of debt if you stick to it, but it’s not for everyone. Here are the pros and cons of the debt avalanche method:

Pros Cons
Saves you money on interest over time Takes longer to see significant progress
Fast method of debt repayment Hard to stay motivated
Easy to follow and financially sound Requires extra funds to put toward debt

The debt avalanche is for you if you are logical, self-disciplined, and paying the least interest is important. Your motivation will come from knowing you’re getting out of debt as quickly as possible and paying less in interest charges, even if it doesn’t always feel like it.

The debt avalanche approach to paying off debt is effective and efficient, but you may need to make sacrifices to make it work. Lowering your spending or working harder to put every extra dollar toward your debt might not seem worth it if you’re not seeing progress fast enough.

If you know you need the psychological boost from small wins to make the sacrifices feel worthwhile, there are other debt repayment methods you could use instead.

Debt Avalanche Alternatives

There are alternatives to the debt avalanche method for paying off debt. Other debt payoff strategies to consider include the following:

The Debt Snowball Method

The debt snowball method is one of the more popular strategies for paying off all types of debt and works similarly to the debt avalanche.

With the debt snowball method, you order your debts based on their outstanding balances, disregarding interest rates. Pay as much as possible on the debt with the smallest balance first.  Once that balance is at zero, repeat the process with the next-smallest debt until you’re debt free.

You’ll still have to make higher than the minimum or additional payments on your target debt to get your snowball rolling. That could mean cutting discretionary spending or earning more income. You’ll also pay a little more interest and be in debt slightly longer than you would with the debt avalanche.

But if you’re looking for a debt payoff method that will give you quick wins in the short term for extra motivation, the debt snowball is for you. Paying off your lowest balance first will give you a sense of progress faster than other debt payment plans.

Paying your larger balances later might still feel slower than you would like. You’ll have a win or two under your belt when you get to them and more money to throw at them, though.

Seeing progress sooner could be the difference between getting out of debt and getting frustrated. You don’t want to go back to making minimum payments and having your debt prevent you from reaching your financial goals.

Debt Consolidation

Debt consolidation involves taking out a new loan to repay your outstanding debts. By rolling multiple debts into one larger debt, you could potentially save money on interest, have a lower monthly payment, or get out of debt faster.

Here are some ways to pay off credit card debt by consolidating your balances:

  • Balance Transfer Credit Card – Transfer credit card debt to a single balance transfer credit card with a 0% introductory interest rate. Depending on the card issuer, the promo period might last from 12 to 21 months. You’ll need good to excellent credit to qualify, and there may be a balance transfer fee of 3% to 5%.
  • Debt Consolidation Loan – You can take out a personal loan with your bank, credit union, or an online lender to consolidate debt if you qualify. You save on interest if the loan carries a lower annual percentage rate than your other debts.
  • Home Equity Loan – If you own a home, you might be eligible to get a loan or line of credit based on the equity in your home with a lower interest rate than an unsecured personal loan. You need equity in your home and a home appraisal. You risk losing your home if you default.
  • 401(k) Loan – If you have a 401(k) plan, you can take a loan against it, but doing so puts your retirement at risk. If you quit or lose your job, the repayment period shrinks to the next federal tax due date. If you can’t repay what you borrowed, you’ll owe a significant penalty plus taxes on the outstanding balance.
  • Debt Counseling – If you don’t have any loan options due to your credit score, a nonprofit credit counseling organization can enroll you in a debt management program. They negotiate a payment plan with your creditors on your behalf. You can find reputable counselors through the National Federation for Credit Counseling or the Financial Counseling Association of America.

Debt consolidation might be a good debt payoff strategy if you get a lower interest rate than what you currently pay on your outstanding debts. Consolidating might lower your monthly payment, save money on interest, and get you out of debt faster.

Staying Out of Debt

Getting out of debt with the debt avalanche method gives you a sense of accomplishment and drastically improves your financial situation. Stay out of debt for good by implementing the following strategies:

  • Creating a budget and sticking to it
  • Lowering your monthly expenses
  • Prioritizing your savings and paying yourself first
  • Building an emergency fund of three to six months’ worth of daily living expenses to cover unforeseen expenses
  • Using cash more and saving for large purchases
  • Using credit responsibly and paying your credit card balance every month

Once your debt payoff journey is complete, understand why you got into debt in the first place and take steps to ensure you don’t put yourself in that situation again.

Image Credits: Pexels and KindaFrugal.com



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