Debt Snowball Method: 6 Steps to Decimate Debt

9 min read

Are you making only minimum payments on multiple credit card and other debt balances? With increasing prices and strong post-pandemic consumer demand, household debt—especially credit card debt—has surged over the past year. If you’ve got a bit of extra cash earmarked for debt repayment and need a little motivation to start paying those balances down, now could be just the right time to consider putting the debt snowball method into action.

What is the Debt Snowball Method?

The debt snowball method is a debt payoff strategy that advocates paying down debt starting with your smallest balance first. While you continue making minimum payments on all your cards, initially, you’ll need extra cash to pay more toward your smallest debt. Once your first smallest balance is completely paid off, you’ll roll all the money you were using to pay that debt into paying down your next smallest debt (accelerating or “snowballing” your paydown), and so on, until all your debt is eliminated.The idea is that by focusing on paying off smaller debts first this will build the motivation and momentum needed to fight debt payoff fatigue and continue rolling your debt repayment money into the next debt until they’re all gone. The quick win from paying off your smallest balance first feeds your motivation to keep going. And as you watch your debt balances decline, the idea is that as you make even more progress this motivation to pay down more continues.

How the Debt Snowball Method Works: 6 Steps

Here are six steps you can use to quickly put the debt snowball method into action:

1. List your debts.

Write down the name of all credit cards and outstanding loans (e.g., personal, auto, medical), along with their balances and minimum monthly payments. For example, say your debt includes the following:

  • Auto loan: $3,000 balance and $350/mo minimum payment

  • Personal loan: $700 balance and $125/mo minimum payment

  • Credit card: $10,000 balance, $200/mo minimum payment

2. Sort debt balances from smallest to largest.

Using our example, you would reprioritize your debt balances for payoff from lowest to highest, like this:

  • Personal loan with $700 balance—plan to pay this one off first

  • Auto loan with $3,000 balance—pay off second

  • Credit card with $10,000 balance—pay off last

3. Pay extra toward your smallest debt.

Continue paying the monthly minimums on all your debt balances (this is essential to avoiding late fees and maintaining your credit score). Then, once you’ve met the minimum payment obligation for each of your balances, put any additional debt repayment funds you have toward your smallest balance first to begin accelerating debt paydown. Our example would look like this:

  • Personal loan with $700 balance—make minimum payment of $125 + extra amount

  • Auto loan with $3,000 balance—make minimum payment of $350/mo

  • Credit card with $10,000 balance—make minimum payment of $200/mo

So,you would continue paying the required minimums of $350 and $200 toward your auto loan and credit card balances, respectively. Then suppose you stop ordering in expensive takeout meals, freeing up an extra $300 per month. You would add this extra $300 you’re no longer spending on takeout to the $125 monthly minimum you’re making on your personal loan,effectively accelerating, or “snowballing,” your debt repayment by $425 per month.

4. Continue until your smallest debt balance is zero.

Continue paying the most you can each month toward your smallest debt until it reaches zero balance. If you’re able put an extra $300 toward that balance over consecutive months, you would have completely paid off your personal loan in less than two months.Making progress feels good—which provides you the motivation you need to start paying down your next debt balance.

5. Snowball the paid off payment amount from your first debt into your next smallest balance.

Now that you’ve quickly eliminated your smallest debt first, repeat the same process on your next smallest debt balance, in this case, the auto loan. Continue making the minimum payment on both remaining debt balances while redirecting the $425 you used to make on your now paid off personal loan to accelerate debt repayment on the auto loan, your next smallest balance.This is where the snowball method really starts to kick in. Now, you’re already paying the minimum payment of $350, plus the additional $425 you’re rolling into that for a combined auto loan debt repayment amount of $775. If you kept up this pace of paydown over consecutive months, your auto loan could be completely paid off in less than four months. (Of course, all of this assumes you’re not adding to your balances.)

6. Keep going until all your debt balances are eliminated.

Repeat the debt snowball method outlined above until your auto loan debt is paid off. Then continue the strategy of rolling the payments you used to make on your personal and auto loans into your credit card balance—the last debt on your list.The idea is to keep paying, rolling, and accelerating debt repayment funds from one debt payment to the next, until all the debts you’ve targeted for payoff have been eliminated, one at a time.

Who Should Use the Debt Snowball Method?

The debt snowball method can be a good strategy if you need some quick wins early in the debt elimination process to help you get motivated. Paying off that first small debt can feel extremely rewarding, and provide the momentum you may need to continue until all your debts are paid.

Who Should Not Use the Debt Snowball Method?

The debt snowball method of debt repayment is not for everyone. Keep in mind the debt snowball may not work for you if:

  • You’re unable to consistently pay more than the minimum amount on your smallest debt balance each month while also making the minimum payments on all your other debts throughout the process.

  • You’re unable to continue rolling the accumulated debt repayment amounts into your
    next smallest balance to achieve the “snowball” effect.

  • You’re more concerned with overpaying on interest. If your smallest debt balances (which you’ll start paying off first with this method) carry lower interest rates than your largest debt balances, there is an increased likelihood of paying more money in interest because the debt snowball method doesn’t take interest rates into account.

  • You’re unable to stop accumulating more debt while working on the debt snowball process.

7 Common Debt Snowball Method Mistakes

If you’re thinking about giving the debt snowball method a go, here are some common missteps to watch for:

1. Trying to pay off multiple debt balances at once.

The debt snowball method is all about tackling one debt at a time, starting with your lowest balance debt first. It may be tempting to put additional cash toward more than one debt at the same time, but this could cause you to get overwhelmed, slow down your progress overall and put your forward momentum in jeopardy.

2. Missing other important payments.

While you focus on using the debt snowball method to pay down your larger debt balances, be sure to keep a close eye on your other household bills and debt obligations. You don’t want to put yourself in the position of missing a rent, mortgage, utility, or other important payment that could cause you to incur late fees, your account to go into collections,or risk the roof over your head.

3. Not rolling over your payments.

To effectively use the debt snowball method, once you’ve fully paid off a debt balance it’s essential you continue rolling the entirety of those now available debt repayment funds into your next smallest debt payment. The temptation to use your debt repayment money for anything other than debt repayment can be strong but doing so could impact your motivation and momentum toward becoming debt free.

4. Adding to your debt.

Do whatever you can to prevent yourself from accumulating additional debt while you’re using the debt snowball method. It helps to have a realistic budget in place and set some boundaries around your spending, especially as you first get going with the debt snowball method. Also, you can try leaving your credit card at home, relying exclusively on cash instead. And as an extra deterrent, try removing your credit card information from your favorite online shopping sites.

5. Using emergency savings to make debt payments.

Hold off dipping into your emergency savings to finance your debt snowball payments. Regardless of the total amount of debt you may carry, it’s always prudent to have at least three to six months of living expenses set aside for any unexpected financial setback. If you don’t have an emergency savings account yet, consider building one before you begin paying down debt. And an emergency savings account can provide great peace of mind as well.

6. Forgetting to track your progress.

Part of the magic of the debt snowball method is the ability to see your debt balances decrease over time. Tracking your progress and recognizing how far you’ve come can help you better visualize the forward momentum and success that comes when you stick to it.

7. Giving in to debt paydown fatigue.

Paying down debt is no easy feat, so remember you’re doing this for a reason. Make a list of financial and personal benefits you expect to gain by paying off your debt: an improved credit score, greater financial security, access to better credit rates and terms. Write down and regularly revisit your reasons for paying off debt. Seeing your goals on paper can help fight debt paydown fatigue.

Alternatives to the Debt Snowball Method

Many have found success with the debt snowball strategy, however, it’s not the only way to go about eliminating debt. One of these other following strategies may work better for you:

Debt avalanche method

The debt avalanche method is a debt repayment strategy that has you focus on paying down the balances with the highest APR first. Like the debt snowball method, the debt avalanche method helps you stay motivated for paying down debt through a process that builds your confidence and momentum as see your debt balances decrease. But by tackling your high interest rate debt first—the debt that’s costing you the most money—you can reduce the total amount of interest you would otherwise have to pay over time.

Debt snowflake method

The debt snowflake method involves finding daily micro-savings that can help you slowly chip away at debt. The small savings you can find when, for example, you split lunch with a friend or use a cash-back app. Compatible with the debt snowball or the debt avalanche, the concept with the debt snowflake method is that finding and capturing tiny savings over time can have an outsize effect. And you must be quick to catch them: snowflakes disappear quickly.

Refinancing your debt with a personal loan

In some cases, it might make sense to refinance your existing debt by taking out a personal loan. This could be a good option if your credit score has improved, or you can get a lower interest rate on a personal loan than you have with your existing lines of credit.

Consolidating debt

With a debt consolidation loan, you roll all your debts into a single loan and then pay down your debt with one fixed monthly payment. Depending on your credit score, you may be offered a lower interest rate, lowering your total cost of debt overall.

The Bottom Line

If you’re juggling thousands of dollars of debt, it’s common to feel like your financial life is out of control. Fortunately, the secret to gaining control over your money could be simpler than you think. Using the debt snowball method to tackle one debt balance at a time starting with your smallest balance first can make paying down debt feel much more manageable. If motivation is what you need along with a solid plan that can help accelerate the debt paydown process as you move along, the debt snowball method could be the way to finally eliminating your debt.

Debt Snowball Method FAQs

How do I get out of debt with the debt snowball method?

To get out of debt with the debt snowball method, list all your existing debts from smallest to largest, continue making the minimum payments on all your debts while allocating additional money toward the smallest debt first until it’s paid in full. Repeat this process using the next smallest debt until all debts are paid off.

Which is better: debt snowball method or debt avalanche method?

Whether you choose the debt snowball method or the debt avalanche method to eliminate debt depends on your financial goals. If paying less in interest and saving money over time is your primary goal, the debt avalanche strategy will have you paying down high-interest rate debt first, saving you on the cost of financing. If you need a debt paydown strategy that will help you build momentum and keep you motivated, the debt snowball method will have you paying off your lowest balances first, providing quick wins that can help you stick with it.

Is it better to pay off small debts first?

When it comes to paying off large amounts of debt spread over multiple account balances, paying off small debts first can provide the positive reinforcement needed to continue making debt repayment less of a burden and help you stick with it. Every debt that’s paid off brings you closer to the realization that debt elimination is within reach which helps you stay motivated to keep paying down even more debt until it’s gone.

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