Debt Avalanche

The debt avalanche method prioritizes paying off the debt with the highest interest rate first while making minimum payments on all other balances. Once the highest-rate debt is eliminated, you redirect those payments to the next highest rate, creating a cascading effect.

This approach is mathematically optimal because it minimizes the total interest you pay across all debts. For example, paying off a 24-percent credit card before a 6-percent car loan saves significantly more money than the reverse order, even if the credit card has a smaller balance.

While the debt avalanche is the most cost-effective strategy, it requires discipline because the highest-rate debt may also have the largest balance. Some people prefer the debt snowball method for its psychological wins, but the avalanche method can save hundreds or thousands of dollars in interest over the repayment period.