Debt always feels like a burden. But with a bit of discipline and the right planning, you can pay it off faster. One of the ways to do so is by following the debt avalanche method. To save money and yet become debt-free sooner, the method focuses on paying off those debts with the highest interest rates first.
Debt Avalanche Method: Reduce Interest And Become Free Of Debts
To reduce the overall amount of interest you pay over time, the debt avalanche strategy focuses on paying off the loans with the highest interest rates first. It can shorten the total repayment duration and result in long-term financial savings by focusing on the most costly loans first. But you must continue to make your payments on time.
The debt avalanche approach may first seem slower, but it is more cost-effective than the debt snowball method, which prioritises smaller balances. The biggest challenge is staying disciplined, particularly if your financial circumstances suddenly alter.
Become Debt-Free By 2027
Here’s how you can structure this repayment plan to become debt-free by 2027:
List Every Debt You Have, Along With The Interest Rates
Make a thorough list of all your outstanding debts. Add each debt’s balance, annual interest rate and necessary minimum payment each month. After the list is created, place the items from highest interest debt at the top to lowest interest debt at the bottom. The debt avalanche approach is based on this ranking. It will assist you in concentrating on paying off the most costly debts first.
Determine how much money you can set aside each month to pay off debts after paying for necessities like rent, groceries, bills, and transportation, among other things, using this list.
Cover Minimum Payments
Every month, continue making the minimum payment on all of your debts. Minimum payments ensure that your accounts stay in good standing and protect your credit score. The Debt Avalanche Method does not suggest ignoring minimum payments on lower‑interest debts.
Allocate Extra Funds To The Highest Interest Debt
Once you’ve made all minimum payments, any extra money you can afford should go towards the debt with the highest interest rate. Even a small additional payment each month can make a significant difference over time.
For example, if you have extra funds after minimum payments, applying them to a high‑interest credit card balance can reduce that debt much faster than splitting extra payments across all debts evenly.
Roll Over Payments As Debts Are Paid Off
Once the debt with the highest interest rate is fully paid, shift your focus to the next highest-interest debt. Take the total amount you were paying on the previous debt, including both the minimum payment and any extra, and apply it to this next debt. This way, your payments stay consistent, helping you reduce the debt faster and save more on interest over time.
Repeat this process until all your debts are paid off.
Changes That Can Speed Up Your Debt Payoff
While the debt avalanche method itself is powerful, there are additional steps you can take to become debt-free:
Cut unnecessary expenses: Redirect every rupee saved from discretionary spending toward debt repayment.
Increase income: Consider a side hustle or freelance work and use all extra earnings for debt payoff.
Avoid new debt: Resist the temptation to take on new loans or credit while working through existing debt.
Pros And Cons Of Debt Avalanche Method
Advantages: The debt avalanche method helps you save money by targeting debts with the highest interest rates first, reducing the total interest you pay over time. Since most lenders use compound interest, this approach can also shorten the time it takes to become debt-free, as less interest accumulates, provided you make consistent payments.
Disadvantages: One drawback is that it focuses on interest rates instead of than debt balances. Large debts with lower interest may shrink slowly, which can feel discouraging. The method also requires discipline and consistency. Financial changes or setbacks can make it tempting to stick to minimum payments instead.
Common Mistakes To Avoid With The Debt Avalanche Method
While following the debt avalanche method, watch out for these pitfalls:
Neglecting savings: Even as you focus on paying down debt, keeping a small emergency fund is essential to avoid taking on new debt if unexpected expenses arise.
Missing minimum payments: Skipping the minimum payments on lower-interest debts can lead to penalties and damage your credit score, even if you’re targeting higher-interest debts first.
Overall, becoming debt‑free by 2027 using the debt avalanche method requires planning, discipline and consistency. By prioritising high‑interest debts and maintaining strict discipline, you can reduce the time to financial freedom and save thousands in interest. Start today, stay focused and with each cleared debt you’ll be closer to a life without financial burden.