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Debt Avalanche Method
Definition
The debt avalanche method prioritizes paying off debts with the highest interest rates first, minimizing total interest paid over time.
Explanation
The debt avalanche is the mathematically optimal repayment strategy. List debts by interest rate (highest to lowest). Pay minimums on everything, then put extra money toward the highest-rate debt. Once paid, roll to the next highest rate.
This method saves the most money on interest but requires more discipline since the first debt to clear may take longer — there's no quick psychological win.
Example
Debts: credit card at 22% ($3,000), car loan at 6% ($8,000), student loan at 4% ($12,000). Pay the credit card first despite it being the smallest.