Tackling Debt with the Avalanche Method: A Guide for Kiwis

Paying off debt is a life lesson that all Kiwis should learn. One extremely effective strategy is the avalanche method. This approach focuses on eliminating debts with the highest interest rates first, helping you save money in the long run. Here’s a step-by-step guide on how to implement the avalanche method in New Zealand:

1. List Your Debts & Organise Them
   
   Begin by listing all your debts in order of their interest rates, from the highest to the lowest. This could include credit card balances, personal loans, and any other outstanding debts.
   
   
2. Maintain The Minimum Payments Without Failure
   
   Ensure you continue making the minimum payments on all your debts to avoid penalties and keep your accounts in good standing. It’s even smart to get one payment ahead. Do everything you can to make this happen.
   
   
3. Pay All You Can To The Highest Interest Debt
   
   Direct any extra money you can towards the debt with the highest interest rate. When we say any extra money, we mean ALL extra money. Compounding interest is mounting and hurting you financially, so get rid of it quickly. By focusing on this debt first, you’ll reduce the amount of interest accruing, which helps you save money over time.
   
   
4. Once Paid, Move To The Debt Next Highest Interest
   
   Once you’ve paid off the highest interest debt, take the money you were using for that payment and apply it to the next debt on your list immediately. Continue this process until all your debts are cleared. Don’t deviate, stay on track. This is a sprint, hard and fast.

Why Choose the Avalanche Method?

The avalanche method can be particularly effective because it targets the most expensive debts first. By reducing the high-interest balances early on, you’ll pay less in interest overall, which can speed up your journey to becoming debt-free. It could be the difference between paying off a bunch of debts in 4 years, versus 2.6 years. Yes, it can make that much of a difference.

Weekly Payments Rather Than Monthly

If you have the option, consider making weekly payments instead of fortnightly or monthly ones. Weekly payments mean your principal balance is reduced more often, which can decrease the total amount of interest you pay and help you clear your debt faster. Plus, smaller, more frequent payments can make managing your budget easier and keep you motivated by providing regular progress.

Revolving Credit

If you’re responsible with money, you can put all your expenses on a 30 day interest free credit card. Just pay the balance off before the end of the 30 days, and you won’t get charged interest. This is a way to pay down your debts that are accruing daily interest. However, beware that if you don’t do this correctly, you can get yourself into a lot more debt because credit cards charge fees and high interest rates. Read more on this subject and please note, this is not financial advice. Please seek professional advice.

Final Thoughts

Paying off debt can feel overwhelming, but with a structured plan like the avalanche method, you can tackle your debts efficiently, plus it feels good to get those wins under the belt. Remember, the key is to stay consistent and keep focused on your goals. By prioritising high-interest debts and considering weekly payments, you can save money and become debt-free sooner.

Stay committed, and watch your debts disappear like an avalanche sweeping down a mountainside.

If this all seems too hard, contact Alternate Finance for a debt consolidation loan. We can reduce your overall interest rates and help you avoid penalties.