Debt Avalanche Method

The avalanche method saves you the most money. It attacks your most expensive debt first.

What Is the Avalanche Method?

The Strategy

1. List all debts by interest rate (highest to lowest)
2. Pay minimums on all debts
3. Put all extra money toward the highest-rate debt
4. When that’s paid off, move to the next highest
5. Repeat until debt-free

Why “Avalanche”?

Like an avalanche, it starts small but gains momentum. The savings compound as you eliminate expensive debt first.

The Math Behind Avalanche

Example Setup

Extra available: ₹6,500/month Total payment: ₹30,000/month

Avalanche Order

1. Credit Card (42%) — Attack first
2. Personal Loan (14%) — Attack second
3. Car Loan (9%) — Attack last

Payment Strategy

Phase 1: Attack Credit Card

• Pay minimums on all: ₹23,500
• Extra ₹6,500 → Credit Card
• Credit Card payment: ₹11,500/month

Phase 2: Credit Card Paid (Month ~10)

• Freed up: ₹11,500
• Now attack Personal Loan
• Personal Loan payment: ₹6,500 + ₹11,500 = ₹18,000/month

Phase 3: Personal Loan Paid (Month ~22)

• Freed up: ₹18,000
• Now attack Car Loan
• Car Loan payment: ₹12,000 + ₹18,000 = ₹30,000/month

Phase 4: Debt Free (Month ~38)

Total Savings

Step-by-Step Implementation

Step 1: Create Your Debt Ladder

List debts from highest rate to lowest:

Step 2: Calculate Your Debt Budget

Total Minimum Payments: ₹24,500
Extra Available for Debt: ₹5,500
Total Monthly Debt Budget: ₹30,000

Step 3: Focus All Extra on #1

Monthly payment allocation:

• Credit Card A: ₹3,750 + ₹5,500 = ₹9,250
• Credit Card B: ₹2,250 (minimum)
• Personal Loan: ₹5,200 (minimum)
• Gold Loan: ₹3,500 (minimum)
• Car Loan: ₹9,800 (minimum)

Step 4: Track and Adjust

Step 5: Roll Over Payments

When Credit Card A is paid:

Previous CC A payment: ₹9,250
Now add to CC B: ₹2,250 + ₹9,250 = ₹11,500

This “debt snowball” accelerates with each debt cleared.

Avalanche vs. Snowball

Quick Comparison

When Avalanche Wins Big

Large rate differences:

• Debt A: ₹50,000 at 42%
• Debt B: ₹30,000 at 9%

Avalanche saves significantly more.

Large high-rate balances:

• ₹2,00,000 at 18%

Attacking this first saves massive interest.

When to Consider Snowball Instead

• You need quick wins to stay motivated
• Rate differences are small (all around 10-12%)
• You’ve tried avalanche and quit

Real-World Avalanche Example

Priya’s Debt Situation

Monthly income: ₹90,000 Total debt budget: ₹35,000

Extra available: ₹35,000 - ₹35,000 = ₹0

Wait, no extra?

Finding Extra Money

Priya reviews budget and finds:

• Reduce dining out: ₹3,000
• Cancel unused subscriptions: ₹1,000
• Sell old items: ₹5,000 (one-time)

New extra available: ₹4,000/month

Priya’s Avalanche Plan

Phase 1 (Months 1-25): Attack Credit Card

• Payment: ₹6,000 + ₹4,000 = ₹10,000/month
• Plus ₹5,000 lump sum from selling items

Phase 2 (Months 26-33): Attack Personal Loan

• Payment: ₹2,800 + ₹10,000 = ₹12,800/month

Phase 3 (Months 34+): Extra to Home Loan

• Add ₹12,800 to home loan prepayment
• Saves years of interest

Priya’s Results

Common Avalanche Challenges

Challenge 1: Highest Rate Debt Is Huge

Problem: Credit card at 42% but ₹3,00,000 balance. Feels like forever.

Solutions:

• Break into milestones (every ₹50,000)
• Track weekly instead of monthly
• Calculate daily interest savings
• Consider hybrid approach

Challenge 2: No “Extra” Money

Problem: All income goes to minimums.

Solutions:

• Review budget for cuts
• Increase income (side gig, overtime)
• Sell items for lump sum
• Negotiate lower rates

Challenge 3: Losing Motivation

Problem: First debt taking too long.

Solutions:

• Celebrate small wins (every ₹10,000)
• Visualize progress (charts, thermometers)
• Calculate interest saved weekly
• Partner accountability

Optimizing Your Avalanche

Tip 1: Negotiate Rates First

Before starting, try to lower rates:

• Call credit card company
• Request personal loan rate reduction
• Transfer to lower-rate card

Even 2-3% reduction helps significantly.

Tip 2: Use Windfalls Strategically

Apply 100% of bonuses, tax refunds, gifts to #1 debt.

Tip 3: Avoid New Debt

Every new purchase on credit:

• Restarts the clock
• Adds interest burden
• Delays freedom

Cut up credit cards if needed.

Tip 4: Automate Payments

Set up auto-pay for:

• All minimums (never miss)
• Extra payment to #1 debt

Remove the decision from the equation.

Tracking Progress

Monthly Review Template

════════════════════════════════════════
         AVALANCHE TRACKER - MONTH 6
════════════════════════════════════════
Current Target: Credit Card (42%)

Starting Balance: ₹1,20,000
Current Balance: ₹62,000
Paid This Month: ₹10,000
Interest This Month: ₹2,200

Progress: 48% complete
Estimated Payoff: Month 13

Total Debts: 3
Debts Cleared: 0
Next Target: Personal Loan (16%)

Interest Saved vs Minimum: ₹18,000
════════════════════════════════════════

Visual Tracker

Create a chart showing:

• Starting point
• Current position
• End goal
• Time remaining

Seeing the line trend down motivates you.

The Avalanche Acceleration

As each debt clears, your attack power grows:

This is the avalanche effect — your payments get bigger as you progress.

Key Takeaways

• Pay highest rate first — saves the most money
• Minimums on all others — don’t miss payments
• Roll over payments — freed money attacks next debt
• Be patient — first debt may take time
• Track progress — see the interest savings
• Avoid new debt — don’t add to the pile
• Automate — remove willpower from the equation

Next: Debt Snowball Method — The psychologically motivating payoff strategy.