Question 1

What is the debt avalanche method?

Accepted Answer

The debt avalanche method involves paying minimums on all debts, then putting any extra money toward the debt with the highest interest rate. Once that is paid off, you roll that payment to the next highest rate. This method saves the most money in interest and is mathematically optimal.

Question 2

What is the debt snowball method?

Accepted Answer

The debt snowball method focuses on paying off the smallest balance first, regardless of interest rate. This provides quick psychological wins as debts are eliminated. Research shows many people are more successful with this method because the motivation from early wins helps them stay on track.

Question 3

How much extra should I pay each month?

Accepted Answer

Even small extra payments make a significant difference. An extra $100/month on a $10,000 credit card at 20% APR can cut payoff time from 10+ years to under 4 years and save thousands in interest. Use this calculator to see the exact impact of different extra payment amounts.

Question 4

Should I pay off debt or invest?

Accepted Answer

If your debt interest rate is higher than your expected investment return (typically 7-10% for stocks), pay off the debt first. High-interest debt (credit cards at 15-25%) should almost always be paid off before investing beyond any employer 401k match. Low-interest debt (mortgage at 3-4%) may be worth keeping while investing.

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Payoff Order (avalanche method)

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