How to Use the Debt Tsunami Method to Pay Off Debt

When you’re drowning in debt, it can feel like there’s no way out. But there is hope! One effective strategy for paying off debt is the debt tsunami method. This method involves focusing all of your extra money on paying off your debts one at a time, starting with the one with the highest interest rate.

What is the Debt Tsunami Method?

The debt tsunami method, also known as the debt avalanche method, is a debt repayment strategy that involves focusing on paying off your debts in order of highest interest rate to lowest interest rate. The idea behind this method is that by tackling your most expensive debts first, you’ll save money on interest over time and become debt-free faster.

Here’s how it works:

  1. Make a list of all of your debts, including the creditor, the total amount owed, the minimum monthly payment, and the interest rate for each debt.
  2. Order your debts from highest interest rate to lowest interest rate.
  3. Make the minimum payment on all of your debts each month.
  4. Put any extra money you have towards paying off the debt with the highest interest rate first.
  5. Once you’ve paid off the debt with the highest interest rate, move on to the debt with the next highest interest rate, and so on.

By following this method, you’ll be able to pay off your most expensive debts first, which will save you money on interest over time and help you become debt-free faster.

Why Use the Debt Tsunami Method?

There are a few key reasons why the debt tsunami method can be so effective for paying off debt:

  1. You’ll save money on interest: By focusing on paying off your most expensive debts first, you’ll save money on interest over time. This is because debts with high interest rates accrue interest faster than debts with low interest rates. By paying off your high-interest debts first, you’ll be able to save hundreds or even thousands of dollars in interest over the life of your debts.
  2. You’ll see progress faster: When you’re paying off debt, it can be easy to feel like you’re not making progress. But with the debt tsunami method, you’ll be able to see progress faster because you’ll be paying off your debts one at a time. Each time you pay off a debt, you’ll feel a sense of accomplishment and motivation to keep going.
  3. You’ll simplify your finances: When you have multiple debts to keep track of, it can be overwhelming and confusing. But with the debt tsunami method, you’ll be able to simplify your finances by focusing on one debt at a time. This can make it easier to stay organized and on track with your debt repayment plan.

How to Get Started with the Debt Tsunami Method

Getting started with the debt tsunami method is easy. Here’s a step-by-step guide:

  1. Make a list of all of your debts: Start by making a list of all of your debts, including the creditor, the total amount owed, the minimum monthly payment, and the interest rate for each debt. You can find this information on your monthly statements or by logging into your online accounts.
  2. Order your debts from highest interest rate to lowest interest rate: Once you have a list of all of your debts, order them from highest interest rate to lowest interest rate. This will help you prioritize which debts to pay off first.
  3. Create a budget: To be successful with the debt tsunami method, you’ll need to create a budget that allows you to put extra money towards your debts each month. Start by tracking your income and expenses for a month to see where your money is going. Then, look for areas where you can cut back on spending and put that extra money towards your debts.
  4. Make the minimum payment on all of your debts each month: To avoid late fees and damage to your credit score, make sure to make the minimum payment on all of your debts each month. This will help you stay current on your debts while you focus on paying off one debt at a time.
  5. Put extra money towards the debt with the highest interest rate: Any extra money you have each month should go towards paying off the debt with the highest interest rate first. This might mean cutting back on discretionary spending, taking on a side hustle, or selling items you no longer need.
  6. Celebrate your wins: Paying off debt is hard work, so make sure to celebrate your wins along the way! Each time you pay off a debt, take a moment to acknowledge your progress and treat yourself to a small reward.

Tips for Success with the Debt Tsunami Method

Here are a few tips to help you be successful with the debt tsunami method:

  1. Stay motivated: Paying off debt can be a long and challenging process, so it’s important to stay motivated along the way. One way to do this is to set small, achievable goals for yourself and celebrate your progress as you reach them. You might also find it helpful to join a debt repayment support group or work with a financial coach who can keep you accountable.
  2. Be patient: Paying off debt takes time, so it’s important to be patient with yourself and the process. Don’t get discouraged if you have setbacks along the way or if it takes longer than you hoped to become debt-free. Remember that every dollar you put towards your debts is a step in the right direction.
  3. Look for ways to increase your income: The more money you can put towards your debts each month, the faster you’ll be able to pay them off. Consider looking for ways to increase your income, such as taking on a side hustle, asking for a raise at work, or selling items you no longer need.
  4. Don’t take on new debt: While you’re working to pay off your existing debts, it’s important to avoid taking on new debt. This means being mindful of your spending and avoiding the temptation to use credit cards or take out new loans.

Real-World Example

Let’s take a look at a real-world example of how the debt tsunami method might work. Let’s say you have the following debts:

  • Credit card A: $5,000 balance, 18% interest rate, $100 minimum monthly payment
  • Credit card B: $3,000 balance, 15% interest rate, $75 minimum monthly payment
  • Student loan: $10,000 balance, 6% interest rate, $200 minimum monthly payment
  • Car loan: $8,000 balance, 4% interest rate, $300 minimum monthly payment

Using the debt tsunami method, you would focus on paying off your debts in the following order:

  1. Credit card A (18% interest rate)
  2. Credit card B (15% interest rate)
  3. Student loan (6% interest rate)
  4. Car loan (4% interest rate)

Each month, you would make the minimum payment on all of your debts and put any extra money towards paying off Credit card A first. Once Credit card A is paid off, you would move on to Credit card B, and so on.

Let’s say you have an extra $500 to put towards your debts each month. Here’s how your debt repayment plan might look:

  • Month 1: Pay $600 towards Credit card A ($100 minimum payment + $500 extra)
  • Month 2: Pay $600 towards Credit card A
  • Month 3: Pay $600 towards Credit card A
  • Month 4: Pay $600 towards Credit card A
  • Month 5: Pay $600 towards Credit card A
  • Month 6: Pay $500 towards Credit card A (Credit card A is now paid off!)
  • Month 7: Pay $575 towards Credit card B ($75 minimum payment + $500 extra)
  • Month 8: Pay $575 towards Credit card B
  • Month 9: Pay $575 towards Credit card B
  • Month 10: Pay $575 towards Credit card B
  • Month 11: Pay $575 towards Credit card B (Credit card B is now paid off!)
  • Month 12 and beyond: Put the extra $500 towards the student loan until it’s paid off, then put it towards the car loan until all debts are paid off.

By following this plan, you would be debt-free in just over 2 years and would save a significant amount of money on interest along the way.