Debt Snowball Method: What To Know and How To Start
When you owe a lot of creditors, it can be hard to know who to pay off first. The debt snowball method directs your focus to your smallest debts, regardless of interest rates. This tested debt-slashing hack can help you save money and pay off what you owe with less stress.
- The debt snowball method is a debt payoff strategy where you make minimum payments on all debts, then put any extra money toward the smallest balance first.
- After you’ve paid off one debt, you “roll” the freed-up payment to the next-smallest balance, repeating until all debts are paid.
- The debt snowball can help you stay motivated to pay off debt by setting up small, psychological wins.
What is the debt snowball method?
With the debt snowball method, you pay minimums on all debts and put extra money toward the smallest balance first. After it’s paid off, you apply that payment to the next-smallest debt.
People use the debt snowball method because it creates quick wins. Paying off a small balance sooner can feel motivating, and each payoff frees up cash flow you can roll into the next debt.
The debt snowball method can make progress feel faster and easier to sustain. It’s also simple to follow: you only have to focus on one target debt at a time while keeping minimum payments on everything else.
How to start the debt snowball method
Learning how to snowball debt is simple. Follow the steps below to get started:
1. Gather your bills
Gather your debt-related bills and highlight your monthly minimum payments and remaining balances. Include credit card bills, medical bills, student loans, car loans and personal loans. Many people exclude their mortgage as it is generally considered good debt.
2. Make a debt snowball worksheet
Creating a worksheet helps you figure out which debt to work on first. It doesn’t have to be complicated — you can even use a sheet of scratch paper.
On your worksheet, list your debts and use the total amount you owe to order them from smallest to largest. Then, create two columns: one for your minimum monthly payment and another for the amount you actually pay each month.
With the exception of your smallest debt, the amount in your “current payment” column should match what’s shown in the “minimum monthly payment” column. For your smallest debt, tack on an additional amount you can pay on top of the minimum amount due.
See the example below for an example of what a debt snowball worksheet could look like.
| Type of debt | Total amount owed | Minimum monthly payment | Current payment |
|---|---|---|---|
| Medical bill | $1,500 | $50 | $50 + $100 additional amount |
| Credit card #1 | $4,000 | $160 | $160 |
| Credit card #2 | $6,000 | $240 | $240 |
| Car loan | $20,000 | $380 | $380 |
3. Pay down debt
Use your worksheet to guide the process of paying down your debts in order. When your smallest debt is paid off, cross it out and repeat the process with your next smallest debt.
It’s important to note that no matter what budgeting method you use, you should pay at least the minimum monthly payments on all of your debts.
Don’t be so aggressive in paying down your smallest debt that you can’t keep up on your other accounts.
Even one payment that’s 30+ days past due can be reported to the credit bureaus and harm your credit score.
Yes! As long as you stick with it, the debt snowball method can help you pay off debt faster.
Consider our hypothetical scenario above. If you were to make only the minimum amount due on all of your debt, it would take about five years to become debt free.
By using the debt snowball method, you’d be out of debt in about three years and save nearly $1,800 in interest.
Pros and cons of the debt snowball method
The debt snowball method is effective, but it’s not for everyone. Consider the pros and cons before committing to this debt repayment strategy.
Debt snowball pros
- It’s free. You don’t have to pay to access the debt snowball method.
- Won’t damage your credit. Unlike some debt management strategies, the debt snowball method won’t cause an initial drop in your credit score.
- It works. You’ll pay off your debt faster and save money in interest with the debt snowball method.
Debt snowball cons
- Not possible if you’re on a tight budget. You must have extra money to put toward your smallest debt to use the debt snowball method.
- Not the best choice if you have unmanageable debt. The debt snowball method won’t help you if you have more debt than you can pay.
- May need to juggle bills. The debt snowball method doesn’t reduce the number of bills you pay each month.
What’s the best way to stay motivated when using the debt snowball method?
Gamify your payoff plan. It might sound silly, but something as simple as filling in a hand-drawn thermometer as you pay down debt can be a great visual motivator. You could also pre-plan a small, inexpensive reward for each debt you pay off. Planning for a small splurge can help you stave off big temptations.
Alternatives to the debt snowball method
Everyone’s personal finance situation is unique, so you might find that a different approach suits you better.
Debt avalanche method
Like the debt snowball method, the debt avalanche method requires you to pay more than the minimum amount due on one debt at a time. However, rather than focusing on your smallest debt, you’ll focus on your debt with the highest interest rate.
Debt snowball vs. debt avalanche: at a glance
| Feature | Debt snowball | Debt avalanche |
|---|---|---|
| Payoff order | Smallest balance first | Highest APR first |
| Primary benefit | Faster early wins can help build momentum | Can minimize how much total interest you pay |
| Potential downside | May pay a little more interest compared to avalanche | Motivation can lag if your highest APR debts are large |
| Best for | People who want structure and momentum | People optimizing interest savings |
LendingTree conducted a study comparing the debt snowball and the debt avalanche and found that both work about as equally well — with an exception. Those with a lot of high-interest debt (like credit card debt) may pay a little less interest with the debt avalanche.
Debt consolidation loan
To consolidate debt, you will take out a debt consolidation loan and use it to pay off your credit cards, medical bills and other unsecured debt. Afterwards, you’ll only have one bill to pay (your debt consolidation loan).
If you’ve improved your credit score, you may be able to qualify for a lower interest rate on a debt consolidation loan than what you are currently paying. You’ll also only have one bill to pay instead of several.
Debt management plan
If you have more credit card debt than you can handle, a nonprofit credit counseling agency may be able to put you on a debt management plan (DMP). A DMP can help you get out of debt within three to five years.
When you’re on a DMP, a credit counselor will handle your debt payments for you and may be able to negotiate fees and interest rates. However, you usually can’t use credit while you’re on a DMP.
Is the debt snowball method right for you?
It’s human nature to be gratification-driven, which is what the debt snowball method is all about. But the only way to know if the debt snowball is right for you is to give it a try.
In the end, any strategic attempt toward getting out of debt is a worthy effort. The most important thing is that you don’t lose motivation. The reality is that any debt management strategy can take years to come to fruition. But remember — an object in motion tends to stay in motion, and getting started is sometimes the hardest part.
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