The majority of the borrowers are expected to just pay the EMIs and wish that they can be over with the debt in the near future, but the sequence in which you have to pay the loans is more important than you expect it to be. The avalanche approach allows you to pay off your interest-based loan at least, reducing the total amount of interest that you pay, and you get out of the debt sooner. In a nation where personal loan interest rates can reach as high as 36%, a clever repayment strategy is not a luxury. It is a necessity
What Is the Avalanche Method and How It Works?
The avalanche method is a debt repayment strategy where you focus first on paying off the loan with the highest interest rate. At the same time, you continue making minimum payments on all other debts. Once the most expensive debt is cleared, you roll the amount you were paying into the next highest-interest loan. This process continues until all debts are fully repaid. The logic is simple: the longer a high-interest loan remains unpaid, the more it grows due to accumulating interest.
Example:
Suppose you have three loans – ₹50,000 at 18% interest, ₹30,000 at 12%, and ₹20,000 at 10%. Under the avalanche method, you would first focus on repaying the ₹50,000 loan at 18 per cent. Meanwhile, you continue making minimum payments on the remaining two loans. Once the highest interest loan is cleared, you move to the 12 per cent loan next. After that, you tackle the 10 per cent loan – reducing the overall interest paid over time.
Step-by-Step Guide to the Avalanche Method
- List all your debts: Write down every loan and credit card balance along with its interest rate and minimum monthly payment.
- Rank by interest rate: Arrange them from highest to lowest rate, regardless of the outstanding balance.
- Pay minimums on everything: Ensure no loan defaults by maintaining minimum payments across all debts every month.
- Direct surplus toward the top: Any additional money beyond minimum payments goes entirely toward the highest-rate debt.
- Roll over after each closure: Once a debt is cleared, add its entire payment amount to the next personal loan on your list.
How Much Can You Actually Save in India
Take the case of a borrower having three debt balances: a credit card of Rs 60,000 at 36 per cent, a personal loan of Rs 3,00,000 at 18% and a consumer durable loan of Rs 80,000 at 14%. In the absence of a strategy, the accumulation of interest in the three takes place at the same time. The avalanche technique used and clearing of credit cards initially will allow saving between Rs 18,000 and Rs 35,000 in total interest, depending on the time of repayment and the extra amount available at a given time of the month.
Why the Avalanche Method Requires Discipline More Than Math
The mathematics of the avalanche method is easy. The challenging one is behavioural. Early progress is invisible when a loan with a high interest rate has a large outstanding balance. Payments are made monthly and gradually, and the motivation may decline. It is the borrowers who remain consistent even in cases when results are not immediately evident that gain the most. Set up automatic transfers of your surplus on a specific day each month. This removes the temptation of spending that money elsewhere before it reaches your loan.
How Long Until You Are Debt Free
This table shows how quickly you can become debt-free based on the extra money (monthly surplus) you use to repay your loans after covering your regular expenses and minimum EMIs.
| Monthly Surplus | Estimated Time to Debt Freedom |
|---|---|
| ₹2,000 | 36–48 months |
| ₹5,000 | 24–36 months |
| ₹10,000 | 12–24 months |
The idea is simple: the more extra money you consistently add toward repayments, the faster your high-interest loans get cleared. This strengthens the avalanche method effect, as each closed loan frees up more money to aggressively pay off the remaining ones, speeding up your overall journey to becoming debt-free.
Conclusion
The avalanche technique is not dependent on the big pay or on financial know-how, it takes steadiness. In this approach, Indian borrowers with multiple loans having different interest rates will have a systematically laid and mathematically valid instrument of cutting the interest and becoming liberated in lesser time than that of EMI repayment on its own.
FAQs
Is it better to snowball or avalanche?
The snowball method doesn’t save as much on interest as the avalanche method because it doesn’t pay down higher-rate balances as quickly. However, for many people, focusing on the smallest debts first may be the most effective way to become debt-free because clearing smaller debts quickly shows progress.
Is there a way to lower interest on a personal loan?
Choose a Shorter Repayment Term, personal loans with shorter repayment terms come with lower interest rates because the lender’s risk is limited to a shorter period of time. This also means higher monthly payments, but you’ll pay less total interest over the life of the loan.
Which debts to pay off first?
If two debts have the same interest rate, start tackling the one with the lower balance first. You’ll be able to pay off that debt sooner and may even increase your credit score. Order your debts by interest rate. Start with the highest rate and work your way down to the lowest rate.
Disclaimer: The information provided on this website is for general informational purposes only and should not be considered financial or legal advice. Please consult with a qualified financial advisor before making any decisions.
