The Bright Life > Debt Management

Here comes the snow! What is the Debt Avalanche method?

Debt management can become a mesh of math and numbers. Avalanche is a very directed strategy for how you make your payments - it targets reducing your interest costs ASAP!
February 26, 2020
Aayush Jain
Content Marketing Lead, Bright Money
Avi Patchava, Varun Modi, Amit Bendale, Avinash Ramakanth, Deepak Thakkar
Published on December 11, 2019

Paying off debt can feel like you are climbing up a never-ending icy mountain. But there is hope with a good strategy that directs your efforts well. You will summit that mountain.

The interest costs are the biggest cost of your debt. Two common ways to pay down debt are the Debt Snowball and Debt Avalanche.

We have talked about the Debt Snowball here. This post will explain the Debt Avalanche and its difference from the Debt Snowball.

The Debt Avalanche is a debt pay-down strategy where you prioritize paying off loans and credit card balances that have the highest interest rates. The idea is to minimize the amount of interest you pay as fast as possible. You will save on interest costs sooner compared to other strategies such as the Debt snowball method.

There are other considerations with the Debt avalanche. You might not necessarily have fast success in clearing off a balance. You have to really keep the discipline to get those visible results.

The Debt Avalanche and the Debt Snowball have similar goals, ultimately to get you completely debt-free. The Debt Snowball aims to up your motivation and spirit. It believes motivation is the secret sauce to get you on the path to debt-freedom faster! When you pay off that smallest debt first, you get a taste of victory. That feeling of success is the momentum for you to tackle your next credit card or debt balance.

With the Debt Avalanche, you might not see those early victories. There is more risk of losing steam and giving before you pay off the first debt balance fully.

The Debt Avalanche is the pure ‘mathematical’ or ‘uber-rational’ approach. It makes sense as good math, to begin with, the debt that has the highest interest rates, because this saves you money the fastest, even if results are not as easily visible.

Here’s an example of how the Debt Avalanche method works if you have $1000/ month to pay towards your debt balances.

In the Debt Avalanche, you will ensure you make minimum payments on everything first. Then you will viciously focus your efforts on the card with the highest interest rate. In the above case, the total min due you pay from your $1000 goal for the month is $540. You now have $460 remaining. So how would you allocate it?

The Debt Avalanche method will allocate to the ‘CITI Platinum Credit Card’ since it has the highest interest rate.

The Debt Avalanche method does require good math to be sure you are paying off the balance with the higher interest rate. You do need to know the APR numbers across all your loans and compare them well. Checking every month, in case the rates are changing.

The Bright app handles this whole process for you - completely automated! It will take over for you and apply the Debt Avalanche method perfectly using all the details of your situation, so you just don’t have to think about it. Bright will do the maths saving you the maximum on interest costs so it just happens on autopilot for you.

Bottom line...

Debt Avalanche or Debt Snowball - both have their own advantages and really depend on what you want.. The Debt Snowball focuses on reducing one debt at a time while the Debt Avalanche targets reducing the costs of interest every month. You can also apply a ‘hybrid’ method which aims to get the best of each. The Bright system can handle this all for you - fully automated.

Why muddle your day with debt management, when Bright is here to brighten up your day.

Aayush Jain
Content Marketing Lead, Bright Money

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