Debt Avalanche
A debt repayment strategy targeting the highest-interest debt first to minimize total interest paid.
What is Debt Avalanche?
The debt avalanche is a debt repayment strategy where a borrower directs all extra cash flow toward the debt with the highest interest rate first, while making only minimum payments on all other debts. Once the highest-rate debt is eliminated, the freed-up payment cascades to the next highest-rate debt — creating the "avalanche" effect. Mathematically, the debt avalanche minimizes total interest paid and time to becoming debt-free compared to any other fixed-payment strategy. The main alternative, the debt snowball (targeting the smallest balance first), is less mathematically efficient but may be more psychologically effective because it generates quicker early wins that improve motivation.
Example
A person has three debts: a credit card at 24% APR ($3,000), a personal loan at 12% APR ($8,000), and a car loan at 6% APR ($12,000). Using the debt avalanche, they attack the 24% credit card first with $500/month extra payments. Once paid off, they roll that $500 into the personal loan, then the car loan. Compared to the debt snowball, this saves hundreds of dollars in interest over the repayment period.
Source: Investopedia — Debt Avalanche