The cash flow payoff method: free up minimums first

What the cash flow method actually ranks

Avalanche ranks by interest rate. Snowball ranks by balance. The cash flow method ranks by a different number entirely: the minimum payment on a debt divided by its balance, which tells you how much required monthly payment disappears for every dollar you put toward that specific debt. A debt with an unusually high minimum relative to its balance can rank first here even if it is not the smallest balance or the highest rate.

Why this ranking can differ from both other methods

A debt like a medical payment plan can carry a high required minimum relative to its size, since providers often set a fixed short-term schedule rather than a percentage-based minimum like a credit card. That combination, moderate balance with a high fixed minimum, can produce a top cash flow pick that neither avalanche nor snowball would choose first, because those methods are not looking at the minimum payment at all.

Who this method tends to suit

This approach fits someone whose most pressing problem is squeezing every debt's minimum into a tight monthly budget, rather than someone mainly focused on minimizing total interest over the life of the debt. Freeing up cash flow early can make room to cover other expenses or build a cushion sooner, even if it is not the order that saves the most money over time.

Calculating the ranking for your own debts

This ranking only requires numbers you already have on hand.

1. List each debt with its current balance and minimum payment.
2. Divide each minimum payment by its balance to get a ratio.
3. Sort your debts by that ratio, highest first.
4. Send extra payments to the top of that list while covering minimums everywhere else.
5. Recalculate the ranking whenever a balance or minimum changes meaningfully.

Common questions

Does the cash flow method ever cost more in total interest?

It can, compared to avalanche, since it is not optimizing for interest rate. Whether that tradeoff is worth it depends on how much you need the freed-up monthly cash right now versus minimizing total cost.

Why would a debt have a minimum that is unusually high relative to its balance?

Some payment plans, like a short-term medical bill arrangement, set a fixed schedule based on paying it off quickly rather than a percentage of the balance the way a credit card minimum works, which can push the ratio higher.

Can I combine this with avalanche or snowball?

Some people use cash flow to decide their very first target when money is especially tight, then switch to avalanche or snowball for the rest of the list once minimums feel more manageable.

Is this the same as a custom payoff order?

It is one specific rule for ranking debts, based on the minimum-to-balance ratio, while a custom order can factor in anything you choose, including this ratio alongside other considerations.