Debt Payoff Plan
Compare avalanche vs snowball strategies to get out of debt faster.
Debt Guides
Debt Payoff Calculator — Frequently Asked Questions
What is the debt avalanche method?
The debt avalanche method has you pay minimum payments on all debts, then direct every extra dollar toward the debt with the highest interest rate. Once that's paid off, you roll its payment into the next highest-rate debt. This is mathematically optimal — it minimizes total interest paid. On a $20,000 debt load with mixed rates, the avalanche can save $1,500–$3,000 compared to the snowball method.
What is the debt snowball method?
The debt snowball method focuses on paying off your smallest balance first, regardless of interest rate. After eliminating the smallest debt, you roll that payment into the next smallest. It costs more in interest than the avalanche, but studies show it's more effective for people who need motivational wins to stay on track. If you've tried budgeting before and struggled to stick with it, the psychological momentum of the snowball often wins.
Should I pay off debt or invest at the same time?
The general rule: if a debt's interest rate is above 7%, pay it off aggressively before investing heavily (except for any employer 401k match — always take that first). If the rate is below 4–5%, you'll likely earn more investing in the market than you'd save on interest. Rates between 5–7% are a judgment call based on your risk tolerance and how much the debt stresses you.
How much extra should I pay toward debt each month?
Even $50–$100 extra per month makes a meaningful difference. On a $10,000 credit card at 19.9%, paying the minimum takes over 30 years and costs $15,000+ in interest. Adding $100/month cuts that to under 5 years and saves $12,000. The larger the interest rate and balance, the more dramatic the impact of extra payments. Use this calculator to see your specific numbers.
What is a good debt-to-income (DTI) ratio?
Debt-to-income ratio is your total monthly debt payments divided by gross monthly income. Below 36% is considered healthy by most lenders. Below 28% is excellent. Above 43% will make it difficult to qualify for new credit or a mortgage. If your DTI is high, focus on paying down high-balance debts first to free up cash flow before applying for any new loans.
Does the order I pay off debts affect my credit score?
Yes. Paying off revolving debt (credit cards) improves your credit utilization ratio, which makes up 30% of your FICO score. Paying off a credit card entirely can improve your score by 20–50 points. Paying off installment loans (student, auto) has a smaller immediate impact on your score but reduces your DTI. Either way, consistently making all minimum payments on time is the most important factor.