What is the Debt Snowball Method of paying off debt?

What is the debt snowball method of paying off debt? Learn how the debt snowball strategy works and how you can apply it to your own financial situation.

What is the debt snowball method?

With the debt snowball method, you work to pay down your debts in a specific order, starting with the debt with the smallest balance and moving toward the debt with the largest balance.

When you finish paying off your smallest debt, you take the money you were using for that debt and apply it toward the payment on your second smallest debt. This allows you to pay down that second debt more quickly.

As you pay off each debt, you continue rolling the money from those payments into your next debt payment. Doing this creates a bigger and bigger “snowball” that will continue to eliminate your debt at a faster and faster pace.

Advantages of the Debt Snowball Method

The biggest advantage of the debt snowball method is psychological. It is really motivating to completely pay off a debt. And it can happen fairly quickly when you’re starting with the smallest debt amounts.

Each small win helps you gain momentum toward paying down bigger and bigger debts. It is such a freeing feeling to be rid of a debt forever!

The Steps of the Debt Snowball Method

To follow the debt snowball method, complete the following steps:

1. Make a list of all of your debts, their current balances, and your minimum payment amount for each.
2. Order the list by debt balance, starting with the smallest balance and moving up to the largest balance.
3. Determine how much money per month you can contribute to your debts above the minimum payment amount.
4. Start by putting that additional payment toward your smallest debt. Pay the minimum payment on all other debts.
5. Once you have paid off your first debt, take the total amount that you have been applying to that first debt, and add it to the amount you pay on your second smallest debt. Continue to pay the minimum payment on the rest of your debts.
6. As you pay off each debt, continue to roll the amount you were putting toward your previous debts into the payment for the remaining smallest debt you have until all debts have been paid off.

The Debt Snowball Method: An Example

Let’s say our friend Anna currently has three debts:

• Student loan: $10,000 balance, $100 minimum monthly payment
• Car loan: $15,000 balance, $250 minimum monthly payment
• Credit card: $2,000 balance, $55 minimum monthly payment

Anna’s minimum monthly payments total $405, and she has an extra $200 available in her budget to pay down her debts each month. She will pay a total of $605 toward her debts monthly.

Using the debt snowball method, Anna will work to pay down her credit card first ($2,000), her student loan second ($10,000), and her car loan third ($15,000).

Anna’s Debt Snowball

Name of Debt	Current Balance	Minimum Payment
1. Credit Card	$2,000	$55
2. Student Loan	$10,000	$100
3. Car Loan	$15,000	$250

The first month, Anna will pay $255 toward her credit card debt (minimum payment of $55 + the extra $200 she has available). She will also pay the minimum balances on her student loan and car loan. She will continue to do this until her credit card is paid off.

Once she has eliminated her credit card debt, Anna will take the $255 that she was putting toward her credit card payment and put it toward her student loan instead.

She adds the $255 to the $100 minimum payment she is already making. She is now paying a total of $355 per month toward her student loan. Anna will continue to make the minimum payment on her car loan.

Once she has paid off her student loan, Anna can take the $355 she was putting toward it and add it to her car payment.

This gives her a total of $605 going toward her car payment each month. She will pay it down much more quickly than if she was still only paying the minimum balance.

Anna has successfully completed the debt snowball method and is now debt free!

Disadvantages of the Debt Snowball Method

Though the debt snowball method is an effective strategy and has helped many, many people get rid of their debt, it is not always the best strategy for everyone.

One disadvantage of the debt snowball method is that it doesn’t take the interest rate of the loans into account.

If you have a loan with a high interest rate that also happens to have a large balance, following the debt snowball method would mean that you are still paying off debts with lower interest rates first. As a result, you will end up paying more interest on those higher rate, higher balance loans in the long run.

For this reason, some people choose to employ the debt avalanche method rather than the debt snowball method when paying off their loans.

The Debt Snowball Method vs. the Debt Avalanche Method

While the debt snowball method recommends paying off debts from the smallest balance to the the largest balance, the debt avalanche method calls for paying off the debt with the highest interest rate first and moving toward the loan with the lowest interest rate.

Depending on your individual financial situation, you could end up saving money on interest and paying off your debt more quickly by employing the debt avalanche method.

The downside of the debt avalanche method is that if your debt with a high interest rate also has a high balance, it could take many, many years before you completely pay off your first debt.

To some people, this can feel pretty discouraging and can lead to them giving up their more aggressive debt pay down strategy.

Should you pay off small debts first? Or pay off the debt with the highest interest first?

So what is the best debt repayment strategy: the debt snowball method or the debt avalanche method?

The answer to that question will depend on your personal financial situation and comfort level.

The debt snowball method offers motivating quick wins that could encourage you to keep going with your debt repayment plan. But it could take a little longer and cost you more in interest.

The debt avalanche method can save you money on interest payments and may pay down debt a bit more quickly in the end. But it can feel like progress is very slow at the beginning, which can deter motivation.

Both strategies can be effective ways to work toward becoming debt free so you can allocate your money to your future goals and dreams!

Tracking Your Debt Snowball

If you decide that the debt snowball method is the best strategy for paying down your debts, our Debt Snowball Spreadsheet can help you figure out…

• how much money to allocate toward each debt every month
• how long it will take to pay off each of your debts
• how much progress you’ve made toward paying down your debts
• and more!

This fun visual dashboard allows you to simply enter your debt information, and then it applies the debt snowball method for you and generates a payoff dashboard that you can use to measure your progress and check off your debts each time you pay them.

The Debt Snowball Method: Final Thoughts

Just the fact that you are thinking about the best way to pay down your debts means that you are taking steps in the right direction!

Whether you choose the debt snowball method, the debt avalanche method, or another method entirely, I hope your journey to eliminating debt will be a rewarding one.

I encourage you to choose the method that works best for you and start making progress today— your future self will thank you!

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Thank you so much for following along! Have a wonderful day!

I am not a financial professional. The information in this post is for educational purposes only and is not considered personalized financial advice.