How to Use the Debt Snowball Method for Effective Debt Repayment
Two major methods dominate the debt repayment sphere: the debt snowball and the debt avalanche.
One says you should pay off debts with the highest interest rate first. That’s the debt avalanche method.
The other says to pay off your smallest balances first so you can enjoy quick victories and build confidence. That’s the debt snowball method — and here’s how to use it.
What Is the Debt Snowball Method?
Popularized by money guru Dave Ramsey, the debt snowball method involves paying off one credit card or loan balance at a time, starting with the smallest balance first until you’re totally debt-free.
This debt snowball strategy is perfect for people who are motivated by quick wins. However, there’s a downside: You end up paying more interest in the long term.
Many people disagree with the concept of paying more interest for quicker wins. Why would you pay off smaller balances and let those interest-mongers sit?
Because you’re not a robot — you’re a human being. It’s important to pick a debt management strategy that works for you and keeps you engaged.
Whether you want to get rid of high-interest credit card debt or even your monthly mortgage payment, using the snowball debt repayment method can help you achieve financial freedom.
The debt snowball method helps you take that difficult first step in paying off debt — and then the next step, and the one after that.
How the Debt Snowball Method Works
It’s a simple process. Here’s everything you need to know.
1. List All Your Debts From Smallest to Largest
Start by listing all your outstanding debts. Disregard the interest rates.
Then, order them from the smallest balance to the largest. This can be done on paper, a spreadsheet, an app or in a handy-dandy debt snowball calculator. Include all the debt accounts you want to pay off quickly.
We recommend:
- Credit card debt
- Student loans
- Personal loans
- Auto loans
- Unpaid medical bills
- Mortgage-related debt
- Any other stuff debt collectors keep calling you about
Don’t include debts that are outside of (or approaching) the statute of limitations for responsibility. After a certain amount of time has passed — usually at least three years, but it varies by state — creditors can’t sue you for unpaid debt.
2. Budget To Pay the Minimum Amount on Every Debt
To start a debt snowball plan, you’ll ideally pay the minimum balance across all your bills, so figure out the minimum due to each debt. If you’re struggling to get out of debt, take a look at your budget and see where you can cut back your discretionary spending. Look for ways to earn more money on the side as well.
Try every month to lower your spending and increase your income. You’ll need that extra money for the next step.
3. Put All Extra Money Toward Your Smallest Debt
Once you’ve budgeted minimum payments for all or most of your debt, put any extra toward the first loan on the list — the one with the lowest balance.
That means you’ll be paying the minimum plus your designated extra on that debt. Let’s say $50 plus $150 extra for a total payment of $200.
4. Once It’s Paid Off, Add That Total to the Next Smallest Debt
By starting with your smallest debt, you’ll theoretically finish paying the balance off faster than you could have paid any other.
But don’t stress if it feels like even the tiniest debt is taking forever to pay off — there’s a learning curve to the snowball method, and most people start off slow. Once you do pay off the smallest debt, take every penny you were putting toward that debt and add it to the monthly payment for your next smallest debt.
That means you’ll be paying the first debt’s minimum payment ($50), the second debt’s minimum payment ($100, for example) and your designated extra monthly dollar amount ($150) all toward the second debt. Now, you’re making a $300 monthly payment instead of $100.
Continue paying that amount until the second debt is paid off. Depending on the size and interest rate of your second smallest debt, you could see that balance dry up even quicker than the first.
5. Repeat
Once your second debt is paid off, apply the debt snowball strategy to all of your other debts.
For the third debt account, pay the total of the first debt’s minimum payment ($50), the second debt’s minimum payment ($100), the third debt’s minimum payment ($125, for example) and the designated extra every month ($150). That’s how you snowball your way into putting $425 toward that debt each month.
It’s a simple concept but requires patience and consistency.
If you’re skeptical about paying a little extra interest but know you need quick wins, give the debt snowball a try. Once this debt management strategy is in place, you’ll see how negligible that extra interest can be.
Benefits of Using the Debt Snowball Method
The real magic behind the debt snowball method is its psychological effect. When you face a mountain of debt that seems impossible to overcome, breaking it up into easier chunks helps it feel manageable. As you celebrate each new win and milestone, your commitment grows.
Along the way, you practice better budgeting and improve your financial skills to avoid accruing more debt in the future. It’s an empowering process that can change how you think about money.
Debt Snowball Method vs. Debt Avalanche Method
A closely related alternative to the debt snowball method is the debt avalanche method. While the debt snowball disregards interest rates, the debt avalanche method has you list out your debt balances ranked from highest to lowest interest rate.
Because these processes take time, you will continue to rack up more interest while paying down debt. If you choose the avalanche method, you may have to wait longer for your first big win, but you’ll save on interest in the long run.
Both are effective methods of approaching your debt management plan, just pick which one fits you best.
Elyse Schwanke/The Penny Hoarder
Tips for Successfully Using the Debt Snowball Method
If your chosen path is rolling that debt up into a snowball you can toss off a cliff, here are some key strategies to consider to keep you on the path to success.
- Set realistic goals. You might not be able to put an extra $100 toward debt, even if you really want to. That’s why you have to evaluate your budget to determine what makes sense for your finances. Even an extra $25 or $50 is better than continuing struggling with debt. Your snowball strategy will still grow, just at a slightly slower rate.
- Be patient. The beginning will be the slowest part of this whole process. It can feel like you are going nowhere for months, but stay consistent and trust that you are headed in the right direction.
- Track your progress. Those little wins are so fun to celebrate, but you can celebrate your progress along the way, too. Using a snowball debt calculator or a simple spreadsheet, check in on your progress regularly. Watch that snow build momentum and get excited about the future.
Common Challenges and How To Overcome Them
Managing debt isn’t easy, and it won’t always be fun. It takes patience, consistency and careful money management. Even with a process like the debt snowball method, there’s plenty of room for challenges and slip-ups. Don’t let them put you off your goals.
- High-interest debt can accrue quickly. If you are under the thumb of some extremely high interest rates, they can feel like they are pulling you further from your goal. Stick with the snowball method for the long haul if you’re committed, or switch to the avalanche method if high-interest loans are accelerating too quickly.
- Giving up too soon. Sticking with the snowball method for a handful of months might not get you to your first win. Commit to spend at least a year working consistently to pay off debt this way before you move on to something else.
- Racking up more credit card debt. It’s going to be hard to pay off credit card debt if you’re still spending. Dave Ramsey and others suggest having a savings account cushion (even if it’s only a few hundred dollars to start) so you can avoid reaching for the credit card when unexpected expenses hit.
There’s a reason this method has been so successful for so many people. It works. For the most part, it’s a simple process that you can manage without the help of a financial advisor or debt management firm. It’s worth a little extra prep and effort to find your financial freedom at the end of the path.
Dana Miranda and Rachel Christian are certified educators in personal finance. Miranda is also the founder of Healthy Rich, a platform for inclusive, budget-free financial education. Christian is a senior staff writer for The Penny Hoarder.
