Escape the Debt Trap: How the Avalanche Method Turns Your Debt Into a Payoff Plan

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Everybody talks about the debt problem. Almost nobody hands you a solution. In this video I walk through three levels of debt — global, federal and personal — and then show you the one method that works on any mix of credit cards, car loans and personal loans you happen to be carrying.

The method is the debt avalanche, and the tool is a free calculator we built specifically so people could actually use it. No extra money required to start, though I'll show you what happens when you find some.

What you'll learn

• How global, government and household debt stack up — and which part you can actually control
• How fast U.S. federal debt and personal loan balances have grown since 2010
• Why 20%+ personal loan rates change the math on everything you owe
• How the avalanche method works when you keep paying exactly what you pay now
• What adding $100 a month does to your payoff date and total interest

The debt nobody can do anything about

I start big on purpose. Estimated global debt is around $315 trillion. Break it apart: roughly $64 trillion is business debt, and honestly that piece may not be terrible — if businesses are growing, hiring and producing, and resources are going to their most efficient use, we're all better off. Then there's about $91 trillion in government debt, which is not great. They take our taxes and they still spend more than they take. And household debt sits around $60 trillion. Against all of that, global GDP is a little over $109 trillion a year. We're producing a hundred-something trillion and we owe three hundred-something trillion.

U.S. federal debt: tripled in 14 years

Federal debt in the U.S. is $35 trillion. You might say, big deal, what does that mean to me? In 2010 — just 14 years ago — it was $12 trillion. It tripled. That's out of control, and it means your tax money is spent and then more on top of it is spent. I've done whole videos on how that comes back around to hurt you. And my disclaimer, which I always forget: I'm a big dumb animal, this is for informational purposes only, don't do what I do.

The debt you can actually attack

Here's the number that should get your attention. Credit card debt and these other consumer loans were about $300 billion in 2010. Now it's over a trillion dollars — and that doesn't even count houses. At the same time I recently saw average short-term personal loan rates, three or five year terms, over 20%. That's unbelievable. That's credit card territory, right up there with 23%. If you're carrying a lot of debt, especially heading into a possible recession, the amount of money going out the door as pure interest is astronomical.

The avalanche method, explained simply

I've covered a lot of payoff methods, but this one handles any type of debt at once. You put in each debt: a credit card, a car loan, a personal loan — the amount you owe, what you pay a month, and the interest rate. That's it. The calculator does the rest.

You keep making your minimum payments. You don't add a dollar if you don't have one. The method targets your highest interest rate debt first. When that one is paid off, you take that payment amount and move it to the next highest rate. Then the next. You kill the expensive interest first, which means you spend less money and you finish sooner.

What a little extra does

Ideally you free up something. Spend less going out. Turn off a streaming service. You might think, I don't want to live without that subscription for the next year or two, that would be terrible. Fine — before you decide, put the number in the box. There's a field for additional money. Type $100, click compute, and look at what it does. Maybe your payoff goes from 40 months to 27. Maybe it knocks a couple thousand dollars off the interest. Change the number and see. That's why the box is there.

The calculator then shows you month by month exactly which debt gets the extra money, and when one is paid off, which loan to roll that payment into next. Sit down alone, or sit down with your partner, and say: look what this can do if we're willing to make some changes. You want out of this debt as fast as possible at these rates — particularly if bad economic times are coming and there's a chance someone in the household loses an income.

Key steps

1. List every debt: balance, monthly payment, interest rate. Cards, car loan, personal loans.
2. Enter them in the Debt Avalanche Calculator and compute your baseline payoff with no extra money.
3. Note two numbers: total months and total interest.
4. Add $100 in the extra payment box and compute again. Compare.
5. Find that $100 by cutting something temporary — see cutting expenses temporarily.
6. Follow the month-by-month schedule. When a debt dies, roll its full payment to the next highest rate.
7. Track it so you can see progress with the Debt-Freedom Tracker.

FAQ

Does the avalanche method require me to pay more each month?

No. You can run it while still making your minimum payments. The savings come from directing your existing money at the highest interest rate first and rolling paid-off payments forward. Extra money speeds it up, but it isn't required to start.

Should I use avalanche or snowball?

Avalanche attacks the highest interest rate first, which costs you the least in interest over time. Snowball targets the smallest balance first for momentum. Run both and compare with the avalanche vs. snowball tool or the Debt Snowball Calculator.

Can I include my car loan and personal loans, not just credit cards?

Yes. That's the point of this method — it takes any type of debt. Card, car loan, personal loan, all in one plan. If you want to dig into just the car piece, use the Auto Loan Early Payoff Calculator.