Debt Avalanche Method
Plain-English definition of Debt Avalanche Method — part of our borrowing glossary.
Definition
A debt payoff strategy where minimum payments are made on all debts, and every spare pound is directed at the debt with the highest interest rate first. Mathematically optimal — minimises total interest paid.
Worked example
With three debts (£3,000 card at 22% APR, £5,000 loan at 9%, £1,000 overdraft at 35%), avalanche hits the overdraft first despite being the smallest — its 35% rate dominates. Once cleared, the freed payment cascades onto the card.
Why it matters
Borrowing costs compound fast. A few percentage points of APR, or a few months of faster payoff, can change the total cost of a debt by thousands of pounds over its lifetime. Understanding the mechanics before you sign lets you choose the cheapest credible option rather than whatever is advertised first.
Common mistake
The most common mistake is comparing monthly payments instead of total cost. A lower monthly payment usually means a longer term and more total interest. Always compare the total amount paid over the full term, not just the headline monthly figure.
Calculators that use this concept
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See also
- APR (Annual Percentage Rate) — APR is the yearly cost of borrowing, expressed as a percentage of the amount borrowed, including most fees. A …
- Debt Snowball Method — A debt payoff strategy where minimum payments are made on all debts, and every spare pound is directed at the …
- Balance Transfer — Moving a credit card balance to a new card — typically with a promotional 0% APR window of 12–30 months and a …
- AER (Annual Equivalent Rate) — AER is the savings equivalent of APR — the rate of interest you earn on a savings account assuming interest is…
- SDLT (Stamp Duty Land Tax) — Stamp Duty Land Tax is the UK tax on residential and commercial property purchases in England and Northern Ire…