Debt Avalanche Method

Why the Debt Avalanche Method Works

One of the biggest advantages of this method is interest savings. Prioritizing high-interest debt means borrowers pay less in total interest over time. For instance, clearing a ₹20,000 credit card balance at 18% before a ₹50,000 personal loan at 12% can save approximately ₹3,600 per year in interest. It also leads to faster debt freedom. Allocating an extra ₹5,000 per month toward a 15% interest loan can shorten the repayment period by 8–12 months, compared to only making minimum payments. Additionally, the Debt Avalanche Method maximizes financial efficiency. Since interest savings are redirected to principal repayment, debt is cleared faster, reducing the overall financial burden.

Challenges of the Debt Avalanche Method

Despite its benefits, this method has some downsides. Borrowers may see slow initial progress, as high-interest debts often have larger balances. For example, tackling a ₹5 lakh education loan at 14% may feel overwhelming compared to a ₹50,000 credit card balance. Strict discipline is required to follow this method effectively. Missing a single payment can negate interest savings, making budgeting essential. Additionally, the lack of “quick wins” may feel less motivational compared to the Debt Snowball Method, which prioritizes paying off the smallest debts first for psychological encouragement.

Practical Tips for Managing the Debt Avalanche Method Effectively

To succeed with this method, borrowers should budget rigorously, allocating 20–30% of their monthly income toward debt repayment. For example, someone earning ₹1.5 lakh per month could set aside ₹30,000 for debt clearance to accelerate progress. Setting up automated payments ensures that EMIs are paid on time, avoiding late fees and maintaining discipline. Apps like LoanTap or PayMe can help track repayment progress and interest savings. Since income and interest rates fluctuate, borrowers should reassess their repayment strategy every quarter and adjust allocations accordingly. If income increases, directing more money toward high-interest debt can shorten repayment timelines. For borrowers managing both large and small debts, a hybrid strategy combining Debt Avalanche and Debt Snowball can be useful. For example, using Avalanche for high-interest debts (like a ₹2 lakh medical loan at 10%) while clearing smaller debts first (like a ₹30,000 utility bill at 8%) can balance motivation with efficiency.

Final Thoughts

If you have ₹10 lakh in total debt, the Debt Avalanche Method can save you about ₹1.2 lakh in interest over three years. This method requires patience and discipline, but it is a smart way to pay off debt. It helps borrowers regain financial stability more quickly.