How to Use the Avalanche Method to Pay Off Debt

You’re gonna pay off debt—it’s official. But how you approach it can greatly impact how much money you pay in additional interest. Learn how the Avalanche Method of debt payoff is the ultimate way to save the most while shaking off that debt.

Timestamps:
0:00 Intro
0:25 What is the Avalanche Method?
0:45 Should I Snowball or Avalanche?
1:10 Step 1: Create a Budget
3:01 Step 2: Make Your Monthly Minimum Payments
3:38 Step 3: Arrange Debts by Interest Rate
4:16 Step 4: Send “Leftover Dollars” to First Debt
5:43 Step 5: Pause and Reevaluate
6:56 Step 6: Pursue Next Debt with “Leftovers”
8:04 Step 7: Continue Until Debt-Free!
9:47 What If I Had Used the Snowball Method?
10:58 How to Use YNAB’s “Loan Planner” Tool
11:44 YNAB Win!
12:18 Outro

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[bonitapearl]

I love that you guys advocate for building a cushion and saving for fun things even when you're paying off debt! So many debt strategies revolve around shame and restriction.

[winterdragon]

Hana: "We don't go into debt buying groceries. . . "

ME: "YOU WANNA BET??!!!!" 🤣 I have very truthfully done this.

[kimberlylaw]

Can you please do every training video I need for the rest of my life lol. Just think you could like have so much fun training on all kinds of things. Okay okay large request. Can I just say that I have a very short attention span and your videos are awesome!!!! X Anyway keep up the great work!

[luispereira]

Been using YNAB for the past 6 years, not only don't have any debt, but during this time: we got married with two wedding celebrations in two different countries, my wife income ceased due to Covid redundancies in 2020, my son was born same year and today we are as stable as day one with one more mouth to feed and one less wage in.
Thank you YNAB!

[dwmiska]

I've been doing this avalanche method for about a year now and it really works well. I have a slightly different approach though... In addition to the minimum payments, I also throw the interest charges and in some cases I double it -- this was after I'd freed up a lot of funds and fill the budget. And I am able to pay any cards I'm still using each month
"Being debt free IS a beautiful thing"

[RandomFandomDragon]

Finally wrapped my head around YNAB, and it has been freeing. For our debt payoff journey my husband and I are using the snowball method to start, because we have several low(ish) balances. Once those are complete, we're going to switch to the "anger" method, lol. I heard about this on one of the Budget Nerd episodes; basically pay the bill that makes you the angriest. I feel like YNAB has given me the confidence to switch things up as I need, and my husband now understands being on a budget doesn't mean cutting out all the good stuff - it means planning for it! Perpetually thankful I found out about YNAB! 💜💜

[jasonk]

This approach is used by many. Personally, I chose the Dave Ramsey approach. Pay off debt with the lowest balance first. Then hit the next lowest balance by adding the extra money you're saving. I'd rather get stuff payed off faster as it helps motivate me to get the rest paid off. I just paid off my last cc last week. I'll have my auto loan paid off in 2 months. Then onto my 401k loan. And lastly my student loan. One thing these videos need to address more of is to stop getting into debt. Dump the CCs. Only pay cash for cars. No more financing even if that means getting cheaper cars. Save ahead of time for college. Go to a cheaper school if need be. And get your emergency fund up to 3-6 months expensive. That's very easy to do when you have little to no debt.

[erikahagan]

I'm a snowballer for the psychological momentum (each tiny debt payoff makes you feel so good!), but realized my interest rates were all pretty comparable. I can see how avalanche is a good idea in the scenario in the video. Now, what would you call what my husband and I used to do, which was pay off the debts with the highest monthly minimum payments first in order to free up cash? Before YNAB, we barely made it to the end of the month with $$ in the bank, so freeing up more each month was a huge motivation.

[LaurenWatkinsArt]

I found I did a hybrid method. I payed off a few of the smaller debts that could be paid off quickly so I could free up up money (and gain momentum) and then focused on the rest by interest rate.

[okgreat]

Would love to see Hannah interview people on the street about budgeting - would be great to see what people think about debt. What the best methods are, and which method most people use.

[MrHeatherh]

Best to apply the extra payments directly to principal and not to monthly payments to get total
cost of the loan down faster.

[JustJoia]

I think I want to try and do a combo of both. Your videos makes me enthusiast about becoming debt free.

[dannycontreras]

Awesome video! (again). I used the painful snowball method, dumping every penny toward debt and paid it off (rhymes with Crave Damsey method). But the method described above is more strategic and compatible with life. Love it.

[mirabai]

I did the "anger and anxiety" method. Credit card debt makes me angry. Not owning my car outright makes me anxious. So I threw everything I had at the credit card debt and then redirected to the car loan after that. Now all that's left is student loan debt. What I do now is pay all my bills and then do some math with the leftover money. Half goes to the student loan debt. One-quarter goes to the savings builder and the last quarter goes into the daily living budget. That helps me pad up my entertainment budget and buy stuff I want without going into debt.

[bph]

Really appreciate your videos, I don’t feel like such a failure with your guidance helping me along! ❤ it actually gives me hope!

[CitizenPlane]

I've been using YNAB for 7 months, now. Cash flow is brutally tight for me, and I've recently needed to take out a $25, 000 loan for home repairs. My strategy right now is to pay the minimum payments on my debts, and save what I can into a hybrid category to be used for emergencies or paying off debts. That has kept that money available for any intermittent expenses I haven't had enough time to build savings for. I only put it towards my credit card this month, when I had enough to pay it off altogether. Not having to make that payment every month will make it easier to afford my true expenses.

[NettieFIRE]

Graphics for the two methods were ‘on point’ ✅
Two years of HIFH 😳- where does the time go? More, more, more 😂 always. 👍🏻

[teohert]

While I was tempted to use the Avalanche method, I only have 2 debts by the way, they are both fairly close in interest rates, my credit card debt is over twice as expensive. However, while it sounded like a good idea to put my focus into it and also putting down an extra $1, 000 to help bring it down, I spent my time setting up an Excel sheet, putting the $1, 000 into the credit card debt, or my other debt and realized that not only is it smarter to use the Snowball method in this situation. While both have comparable payoff dates, I end up paying less interest rates in the long run by using the snowball method and paying the lower debt amount first. But I do believe if I had multiple debts I would use the avalanche method as while the snowball method looks nicer and makes you feel better I'd much rather payoff the debt with the most interest rate every time.

[shellibond]

I think Hannah is incredibly charming. I enjoy these videos so much - and I find them so helpful Thanks!

[Concrete_pilot]

Holy Hannah!! I was under the impression the snowball was the holy grail for YNAB. I never even considered the avalanche method. Off to the budget I go!! Make some notes and rethink the strategy! Thank you Hannah!! Much appreciated. Thank you YNAB for giving me control over what was controlling me.