What is "debt avalanche method" for loan app repayment?

The debt avalanche method is a strategy for paying off multiple loans. You focus on the loan with the highest interest rate first, while making minimum payments on everything else.

Let me give you an example.

Your debts:

• Loan A: ₦50,000 at 30% APR
• Loan B: ₦20,000 at 20% APR
• Loan C: ₦100,000 at 40% APR (highest rate!)

Step 1: Make the minimum payment on all three loans.

Step 2: Put ALL extra money toward the loan with the highest interest rate (Loan C at 40%).

Step 3: Once Loan C is paid off, move to the next highest rate (Loan A at 30%).

Step 4: Finally, pay off the lowest rate (Loan B at 20%).

Why the Avalanche Method Is Mathematically Optimal

By targeting the highest interest rate first, you minimize the total interest you pay over time. Every extra naira you put toward a 40% loan saves you 40% annual interest. The same naira toward a 20% loan saves you only half as much.

The CFPB provides example calculations showing how repayment strategies affect total cost. For a $1,000 balance with multiple APRs, paying more than the minimum significantly reduces total interest and repayment time .

Step-by-Step Action

Step 1: List all your debts with three pieces of information:

• Total amount owed
• APR (interest rate)
• Minimum monthly payment

Step 2: Order the list from highest APR to lowest APR.

Step 3: Make minimum payments on all debts.

Step 4: Put every extra naira toward the debt at the top of the list.

Step 5: When the top debt is paid off, move to the next one.

Example Calculation

Using the CFPB's methodology, if you have a $1,000 balance with promotional and regular APRs:

• Making only minimum payments (2% of balance or $20, whichever is greater) takes over 5 years to repay 
• Making a fixed payment of $30 per month (just $10 more) would repay the balance much faster and save substantial interest 

The same principle applies to your loan app debts. Pay more than the minimum whenever possible.