The avalanche method of debt repayment has you list your debts in order of their interest rates, from highest to lowest. Here's why and how it works:
The Logic of the Avalanche Method
Focus on Cost: The avalanche method aims to minimize the total interest you pay over time. By tackling the highest interest rate debt first, you reduce the most expensive debt the quickest.
Mathematical Efficiency: It's mathematically the fastest way to pay off debt if you are strictly concerned about saving the most money on interest.
How It Works
List Your Debts:Â Write down all your debts and their corresponding information:
Balance
Interest Rate (APR)
Minimum Monthly Payment
Order by Interest Rate:Â Â Arrange your debts from the highest interest rate to the lowest, regardless of the balance.
Minimum Payments + Extra:  Allocate enough money to cover the minimum payment on all debts. Then, dedicate any extra funds to the debt with the highest interest rate.
The Avalanche Effect:Â Once the highest interest debt is paid off, roll that entire payment (minimum + extra) to the next highest interest debt. Repeat this process until all debts are cleared.
Example
Credit Card 1: $5,000 balance, 18% APR
Student Loan: $10,000 balance, 6% APR
Credit Card 2: $2,000 balance, 15% APR
In this scenario, you'd focus the extra budget towards Credit Card 1, then Credit Card 2, and finally, the student loan.
Important Considerations
Discipline: The avalanche method requires consistency and may take longer to see results as the high-interest debt could have a large starting balance.
Alternatives: The debt snowball method (which focuses on paying off the smallest balance first) prioritizes quick wins for motivation.
Become a Debt-Free Hero
The debt avalanche method is your path to financial freedom. It might not be flashy, but it's incredibly effective. So, suit up (pajamas totally count!), embrace your inner budgeting superhero, and get ready to slay those debts once and for all!
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