How does the debt avalanche choose a first target?

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The smallest debt here is five hundred dollars, but the avalanche does not choose it first. It sends extra money to the debt with the highest interest rate. In this fictional example, that is the fifteen-hundred-dollar balance at twenty-five percent. The important word is extra. Required payments on every other debt still belong in the plan; a target is not permission to ignore them.

Name the three debts A, B, and C. Their invented required monthly amounts are twenty-five, forty-five, and seventy dollars. Together those total one hundred forty. Suppose the household has checked both affordability and due dates and can allocate three hundred dollars this month. Three hundred minus one hundred forty leaves one hundred sixty extra. Cover the required amounts first, then direct that extra to B.

That makes A's payment twenty-five dollars, B's payment two hundred five, and C's payment seventy. The three payments still total three hundred. B receives its own forty-five-dollar required payment plus the one hundred sixty extra; it does not receive three hundred on top of the other payments. This is a payment-allocation demonstration, not evidence that three hundred is affordable for any particular household.

Here is one modeled month. We use fixed annual rates divided by twelve, charge interest before the end-of-month payments, and round each interest charge to cents. A adds four dollars seventeen; B adds thirty-one dollars twenty-five; C adds forty-five dollars. Subtracting the payments leaves four hundred seventy-nine dollars seventeen, thirteen hundred twenty-six dollars twenty-five, and twenty-nine hundred seventy-five. Real card interest can use daily balances instead.

The highest-rate method aims to reduce exposure to expensive interest when the modeled terms and total payments stay the same. It is not a promise about every contract or every future bill. Promotional rates, fees, special allocation rules, or a payment that does not reach principal as expected can change the comparison. Read the agreement and confirm how extra payments are applied before turning a simplified example into an actual plan.

The practical check is simple: record each balance, its applicable rate, and its required payment. Keep those obligations covered, then identify where the extra goes. Revisit the ranking when terms change. Compare rates while continuing required payments on other debts. This is general education, not individualized financial advice. The next briefing uses the same fictional debts to show how the smallest-balance method chooses a different first target.