Strategies For Paying Off Credit Cards: The Debt Avalanche

What is a Debt Avalanche?

Investopedia defines a debt avalanche as “a type of accelerated debt repayment plan. Essentially, a debtor allocates enough money to make the minimum payment on each source of debt, then devotes any remaining repayment funds to the debt with the highest interest rate. Using the debt avalanche approach, once the debt with the highest interest rate is entirely paid off, then the extra repayment funds go toward the next-highest interest-bearing loan. This system continues until all the debts are paid off.”

As we all struggle with the financial hurdles associated with the pandemic, it is important to develop effective strategies to improve your overall financial health. The Debt Avalanche, often referenced in comparison to the Debt Snowball strategy, is an aggressive approach to paying down credit card debt. Essentially, you’ll be following these set of rules:

  1. Make a list of all of your credit card debts and sort them by the interest rates charged.

  2. Make minimum payments on all of your credit cards

  3. Any remaining money allocated to paying debt will go to the credit card with the highest interest rate.

  4. Once that card is paid off, move to the next credit card with the highest interest rate and allocate additional funds to that card until paid off.

  5. Repeat until your credit cards are paid off.

Strategies like the Debt Avalanche or Debt Snowball are effective but only if you have a clear understanding of your financial profile. If you are not sure where to start, we recommend accessing a copy of your credit report from SmartCredit and utilizing the budgeting tools available to create a game plan.

Battling credit card debt can be difficult, but it can feel overwhelming to try and pay down credit card debt while dealing with other derogatory accounts such as collections, charge offs, and judgments. If you’re struggling to resolve outstanding debts and are looking for a responsible solution to building a healthier credit and financial profile, we encourage you to sign up for a Free Credit Evaluation to discuss the best options for your situation.

Sign up for your free evaluation here.

For more great resources, check out our Free Resources page at www.premiercredco.com/free-resources.

Alex Grimnes