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Debt is a slippery slope. You can be doing just fine when an unexpected bill starts a slide. Maybe you use a credit card or three to keep up for a while. But one setback — like major car repairs — throws you off balance again, and eventually debt begins to swallow you up.

But there’s good news. First, you’re not alone. Second, millions of people like you have dug themselves out of debt using the Debt Avalanche Method. This debt reduction strategy focuses your efforts on the debts with the highest interest rates. Keep reading to learn the advantages and disadvantages of this strategy, as well as some proven alternatives for paying off debt.

Understanding the Debt Avalanche Method

The Avalanche Method is all about the interest rate. Essentially, you’ll make the minimum payments toward all of your debts but put anything extra you can (bonuses, tax refunds, that $20 your grandma stuck in your pocket) toward paying off the high-interest debt at the top of the list. When it’s paid off, move on to the debt with the second-highest interest rate and so on.

Fans of the Debt Avalanche Method laud its efficiency. The most expensive debt is ditched first, which can be a big money saver. And the amount of time it takes to get out of debt overall is cut too, because less interest accumulates every month.

Debt Avalanche Method vs. Other Payoff Strategies

The Avalanche is for rational thinkers. But when it comes to money — and life in general — humans tend to follow their gut. That’s why some people prefer the Avalanche’s more emotionally available cousin, the Snowball Method.

With the Snowball Method, the steps are much the same, but you start your list with the smallest balance and work your way toward the largest, disregarding the interest rate. The idea is that those first targets can be knocked down quickly, creating a sense of accomplishment that helps keep you on task until it becomes a habit.

There are pros and cons to each method. If you use the Avalanche, it may take longer to move from one debt to the next. Also, this method assumes paying off debt as quickly as possible is always the right thing to do. But there are other factors to consider, like your credit score. That said, if you have a larger balance with higher interest rates, you could save money over time.

If you plan to pay off debt with the Snowball Method, you’re more likely to experience quick wins, which could help you stay motivated. But you probably won’t save as much on overall interest as you would with the Avalanche.

If you have multiple high-interest balances, you may want to consider a debt consolidation loan. These personal loans roll several debts into a single loan, which ideally has a lower interest rate. This approach can be a smart move if you’re able to stay on top of monthly payments and have a strong credit score.

Implementing the Debt Avalanche Method

Interested in trying the Debt Avalanche Method? It helps to get your finances organized first.

First, make a budget. Find ways to trim the fat from anything you can — dinners out, streaming services — so you’ll have more cash to pay toward that smothering debt. If you need help, here’s a guide to the 70-20-10 rule of budgeting.

Then make a list of all your debts. Start with the loan or credit card that has the highest interest rate, and work your way down to the one with the lowest interest rate. Continue to make the minimum payments on all your debts, but put anything you can (bonuses, tax refunds, that $20 your grandma stuck in your pocket) toward paying off the high-interest debt at the top of the list.

When the first debt on your list is paid off, cross it off and move to the next debt on your list. Roll whatever payment you were making on the first debt into the second debt, adding it on to the minimum payment. When that debt is paid off, do the same with the third on the list. As you continue paying off outstanding debt, you should have more and more money to put toward the next target balance. Keep going until you’ve plowed through each debt on your list and can declare yourself debt-free.

Depending on how much you owe, it could take some time before you’re able to move from one debt to another. Adopting sound financial habits, like tracking spending and using a budget app, can help you stick to your payoff plan.

Is the Debt Avalanche Method Right for You?

Using the Avalanche Method to pay off debt isn’t necessarily a good fit for everyone. The method is great for disciplined, analytical thinkers who get excited by the knowledge that they’re playing the long game. To make this approach a success, it helps to be the type of person who is self-disciplined, self-motivated, self-aware, and capable of celebrating self-made milestones.

Alternative debt payoff strategies, like the Snowball Method or a personal loan, may make more sense for your lifestyle, financial situation, and personal preferences.

Here are some questions to ask yourself as you weigh your options:

•   What are my short- and long-term financial goals?

•   Do I have high-interest debt?

•   Do I need a series of quick wins to stay motivated?

Maximize the Benefits of the Debt Avalanche Method

Before you begin tackling debt with the Avalanche Method, consider some strategies to get the maximum benefits:

•  Accelerate debt repayment. Paying off your balance doesn’t just relieve stress — it can also save on interest. Kick in more than the minimum payment each month. And if your lender and budget allow, make extra payments.

•  Build an emergency fund. While whittling down debt is the priority, it’s also a good idea to sock away money into an emergency fund. Determine a target amount — a good rule of thumb is to have enough to cover three to six months of expenses. Then open a high-yield savings account and add to it regularly.

•  Seek the help of a professional. Looking for personalized guidance? Consider meeting with a financial advisor, who can examine your current finances, discuss your financial goals, and help you create a plan to achieve them.

The Takeaway

Using the Debt Avalanche Method is a great way to pay off debt for disciplined, logical personalities who want to maximize their savings on interest. The Avalanche works by paying down the highest-interest debt first, regardless of balance, while making minimum payments only on other debts. It’s not for everyone, though, especially if your highest-interest debt is also your biggest balance.

If quick wins help you stay motivated, consider paying off debt with the Snowball Method. Instead of focusing on interest rate, borrowers prioritize the lowest balance first. A debt consolidation loan is another potential avenue to explore, as you can roll multiple high-interest debts into a single loan with (hopefully) a better interest rate.

The key to any debt payoff strategy is to know yourself and choose the method that best fits your preferences and financial goals.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

How long does it take to pay off debt using the Avalanche Method?

While the Avalanche Method tends to whittle down debt faster than making minimum payments each month, the time it takes for you to pay off your balance will depend on the amount you owe, your interest rate, and how much extra you’re able to pay each month.

Can the Debt Avalanche Method be used for all types of debt?

The Avalanche isn’t suited for every type of debt. Consider using it to pay off credit cards, personal loans, student loans, and car loans. Don’t include your mortgage, as financial experts consider this “good” debt. One day, you may decide to put extra money toward paying down your mortgage principal, but for now, focus on your other debts.

What should I do if I have multiple debts with
similar interest rates?

When faced with paying down multiple debts with similar interest rates, the Snowball Method may be your best approach. It involves paying off your lowest balance first, while making minimum payments on your other debts. If the interest rates are high, you may want to explore a debt consolidation loan. That’s where you take out one loan or line of credit (ideally with a lower interest rate) and use it to pay off other debts.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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What do you do with your stocks when the market drops? If you’re like most people, your first instinct is to sell. It’s human nature. But when they decline, selling everything can seem like the best way out of a bad situation. However, instinctively selling when stocks drop is often counterproductive, and it may make more sense to invest while the market is down.

Should You Invest When the Market Is Down?

It’s generally a good idea to invest when the stock market is down as long as you’re planning to invest for the long term. Seasoned investors know that investing in the market is a long-term prospect. Stock market dips, corrections, or even bear markets are usually temporary, and, given enough time, your portfolio may recover.

When the market is down, it provides an opportunity to buy shares of stock through your online investing account at a lower price, which means you can potentially earn a higher return on your investment when the market recovers.

For example, in late 2007, stocks began one of the most dramatic plunges in their history. From October 2007 to March 2009, the S&P 500 Index fell 57%. During that time, many investors panicked and sold their holdings for fear of further losses.

However, the market bottomed out on March 9, 2009, and started a recovery that would turn into the longest bull market in history. Four years later, in 2013, the S&P 500 surpassed the high it reached in 2007. While that historic plunge of over 50% was terrifying, if you panicked and sold, rather than employ bear market investing strategies, you would have locked in your losses — and missed the subsequent recovery.

If, on the other hand, you had kept your investments, you would have seen stock values fall at first, but as the market reversed course, you may have seen portfolio gains again.

Consider the recent example of how the markets performed during the early stages of the Covid-19 pandemic in 2020. The S&P 500 fell about 34% from February 19, 2020, to March 23, 2020, as the pandemic ravaged the globe. However, stocks rebounded and made up the losses by August. As of the end of 2024, markets are hovering around record highs.

These examples illustrate why timing the market is rarely successful, but holding stock over the long term tends to be a smart strategy. It’s still important to keep in mind that the stock market can be volatile and can fluctuate significantly in the short term. Therefore, you must be prepared for short-term losses and have a long-term investment horizon.

Recommended: Bull vs. Bear Market: What’s the Difference?

4 Things to Consider Doing During a Market Downturn

When the stock market is down, it can be a worrying time for investors. But it’s important to remember that market downturns are a normal part of the investing process and that the market may eventually recover. Here are a few things to consider doing during a market downturn.

1. Stay Calm and Avoid Making Impulsive Decisions

It’s natural to feel worried or concerned when the stock market is down, but it’s essential to maintain a long-term perspective and not make rash decisions based on short-term market movements.

Buying and selling stocks based on gut reactions to temporary volatility can derail your investment plan, potentially setting you back.

You likely built your investment plan with specific goals in mind, and your diversified portfolio was probably based on your time horizon and risk tolerance preferences. Impulsive selling (or buying) can throw off this balance.

Instead of letting emotions rule the day, consider having a plan that includes investing more when the market is down (aka buying the dip). These strategies involve buying stocks on sale, and the hope is that the downturn is temporary and you’ll be able to ride any upturn to potential earnings.

So, when markets take a tumble, your best move is often to stay calm and stick to your predetermined strategy.

That said, any investment decisions you make should be based on your own needs. Just because the market is down doesn’t mean you have to buy anything. Buying stocks on impulse just because they’re cheaper might throw a wrench in your plan, just like rushing to sell. Taking time to consider your long-term needs and doing research typically pays off.

2. Evaluate Your Portfolio

Review your portfolio and make sure it’s properly diversified. Portfolio diversification may reduce the overall risk of your portfolio by spreading your investments across different asset classes, like stocks, bonds, real estate, and cash. Investing in various assets and industries can protect your portfolio during a market downturn.

However, even if you have a well-diversified portfolio, you may also need to pay attention to your portfolio’s asset allocation during volatile markets. For example, during a down stock market, your stock holdings may become a lower percentage of your portfolio than desired, while bonds or cash become a more significant part of your overall holdings. If your portfolio has become heavily weighted in a particular asset class or sector, it could be strategic to sell some of those holdings and use the proceeds to buy securities to rebalance your portfolio at your desired asset allocation.

Recommended: How Often Should You Rebalance Your Portfolio?

3. Take Advantage of Low Prices With Dollar-Cost Averaging

To help curb your impulse to pull out of the market when it is low — and continue investing instead — you may want to consider dollar cost averaging.

Here’s how it works: On a regular schedule — say every month — you invest a set amount of money in the stock market. While the amount you invest each month will remain the same, the number of shares you’ll be able to purchase will vary based on the current cost of each share.

For example, let’s say you invest $100 a month. In January, that $100 might buy ten shares of a mutual fund at $10 a share. Suppose the market dips in April, and the fund’s shares are now worth $5. Instead of panicking and selling, you continue to invest your $100. That month, your $100 buys 20 shares.

In June, when the market rises again, the fund costs $25 a share, and your $100 buys four shares. In this way, dollar cost averaging helps you buy more shares when the markets are down, essentially allowing you to buy low and limiting the number of shares you can buy when markets are up. This helps protect from “buying high.”

After ten years of investing $100 a month, the value of each share is $50. Even if some shares you bought cost more than that, your average cost per share is likely lower than the fund’s current price.

Steady investments over time are more likely to give you a favorable return than dumping a large amount of money into the market and hoping you timed it right.

4. Consider Tax-Loss Harvesting

If you’ve already experienced losses, you may want to consider tax-loss harvesting — the practice of selling investments that experienced a loss to offset your gains from other investments.

Imagine that you invest $10,000 in a stock in January. Over the year, the stock decreases in value, and at the end of the year, it is only worth $7,500. Instead of wishing you’d had better luck, you can sell that position and reinvest the money in a similar (but not identical) stock or mutual fund.

You get the benefit of maintaining a similar investment profile that will hopefully increase in value over time, and you can write off the $2,500 loss for tax purposes. You can write off the total amount against any capital gains you may have in this year or any future year, helping to lower your tax bill. This is tax-loss harvesting.

You can also deduct up to $3,000 of capital losses each year from your ordinary income. However, you must deduct your losses against capital gains first before using the excess to offset income. Losses beyond $3,000 can be rolled over into subsequent years, known as tax loss carryforward.

During major market downturns, this technique can ease the pain of capital losses — but it’s important to consider reinvesting the money you raise when you sell, or you’ll risk missing the recovery. But remember that with investing comes risk, so there’s no assurance that a recovery will occur.

4 Things to Avoid When the Market Is Down

Feeling anxious when the stock market is down is natural, but it’s important to remain calm and not let fear drive your investment decisions. Here are a few things to avoid when the stock market is down.

1. Trying to Time the Market

Timing the market is the idea that you will somehow beat the market by attempting to predict future market movements and buying and selling accordingly. However, it’s difficult to predict with certainty when the stock market will go up or down, so trying to time the market is generally a futile endeavor.

However, it’s difficult to predict with certainty when the stock market will go up or down, so trying to time the market is generally a futile endeavor. As they say: No one has a crystal ball in this business.

As a result, timing the market is not a strategy that works for most investors. Even during a down market, you should not wait until the market hits bottom to start investing in stocks again.

2. Selling All Your Stocks

You should resist the temptation to sell all of your stocks or make other rash decisions when the market is down. While it may be tempting to sell all of your stocks during a down market, it’s important to remember that the stock market usually recovers. If you sell all of your stocks when the market is down, you may miss out on the opportunity to participate in the market’s recovery.

3. Chasing After High-Risk Investments

When stocks are down, you may be inclined to try to earn quick profits by investing in high-risk assets — like commodities or cryptocurrencies — but these investments can be particularly volatile and are not suitable for everyone.

Moreover, riskier investment strategies like options and margin trading may be an appealing way to amplify returns in down markets. But if you are not comfortable using these strategies, you could end up with even bigger losses.

Recommended: Options Trading 101: An Introduction to Stock Options

4. Abandoning Your Long-Term Financial Plan

It’s important to remember that the stock market is just one part of your overall financial plan. Keep your long-term financial goals in mind, and don’t let short-term market movements distract you from your larger financial objectives.

Risks to Investing During Down Markets

While the stock market generally recovers after a decline, there are exceptions to the idea that the market tends to snap back quickly or always trends upward.

Take the stock market crash of 1929. Share prices continued to slide until 1932, as the Great Depression ravaged the economy. The Dow Jones Industrial Average didn’t reach its pre-crash high until November 1954.

In addition, as of early 2023, the Nikkei 225 — the benchmark stock index in Japan — has yet to reach the peak of over 38,000 it hit at the end of 1989. Back then, the index went on to lose half its value in three years as an economic bubble in the country burst. However, the Nikkei did touch the 30,000 level at various points in 2021 for the first time since 1990.

So, investors need to remember that just because stock markets have recovered in the past doesn’t mean that it will always be that way. As the saying goes, past performance is not indicative of future results.

The Takeaway

Almost everyone feels a sense of worry (or fear) when the market is down. It’s only natural to find yourself swamped with doubts: What if the market keeps sliding? What if I lose everything? What if it’s one of those rare occurrences when the recovery takes ten years?

Rather than succumb to panic, perhaps the best course of action is to stay the course, and not to give in to your impulses to sell or scrap your entire investment strategy, but to stay the course. Using strategies like dollar-cost averaging, which allow you to invest in a down market sensibly, can be a part of a balanced investment strategy that helps build wealth over time.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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