Written by: Eric Bank
Edited by: Austin Lang
Reviewed by: Jon McDonald
If you are buried under a mountain of debt and don’t know how to get out, the debt snowball method might be a good place to start. The method can help reduce your debt, but it also offers a little motivation as you take control of your financial future. By eliminating your lowest debts first, you feel a sense of accomplishment, build discipline, and create momentum that carries you forward.
The debt snowball method is a repayment strategy that involves paying off your lowest balances first so you can achieve quick wins and build momentum toward a debt-free lifesetyle.
The debt snowball method focuses on small and achievable goals. Instead of worrying about interest rates, you organize debts and start putting more money toward the smallest balances.
Speedy repayment of a small loan or credit card can give you a psychological victory that encourages you to stay on track. I’ll take you through all the steps of the debt snowball and show you how it helps build discipline and confidence. And who knows, maybe you can use it to make a molehill out of your mountain of debt.
How the Debt Snowball Method Works
The debt snowball process provides a straightforward roadmap to financial success. Eliminating debts step by step and having a clear plan helps you stay on the path.
1. List All Outstanding Debts
First, you need to identify all of your balances before you can start paying them off. Start by making a list of everything you owe, from credit cards to personal loans.
Then, order them by balance from lowest to highest. Don’t worry about interest rates — this is more of a psychological tool than a mathematical technique. By paying off the lowest balances first, you have a series of quick wins that keep you motivated.
To make this list as comprehensive as possible, include every obligation — doctor’s bills, student loan debt, car payments, and debt owed to family members. The goal is to have a clear picture of everything you owe. In most instances, writing down debts is a sufficient wake-up call to get you moving in the right direction.
2. Focus Extra Payments on the Smallest Debt
Once you have debts in a list form, you need to determine where to make extra payments. By making additional payments on the lowest debt first, you build momentum toward your debt reduction goal.
Pay only the minimum on every debt except for the one with the lowest balance. Put any extra money — bonuses, tax returns, or side hustle cash — toward paying off that one as quickly as you can. The faster you get rid of it, the quicker you’ll be on to the next one. With every payoff, you build confidence and reinforce good habits.
If you have a tight budget, try to eke out a bit more money. Modest changes in your lifestyle — such as cutting restaurant expenses or eliminating unwanted subscriptions — can free up extra money to pay off debt more rapidly. You can also attempt to increase income through overtime, freelance opportunities, or selling items you no longer need. Every cent counts when paying off debt.
3. Roll Payments to the Next Debt
The faster you pay off your lowest debts, the more you can start putting toward higher debts. This snowball effect accelerates as it progresses and makes big debts more manageable by the end.
After you have paid off the lowest debt, you roll what you have been paying on that one into the next lowest debt. This rolling over of payments gives your debt repayment momentum over time. With each step, you make a larger payment and pay off debt faster, like a snowball rolling downhill!
Why the Method Is So Effective
As you pay more monthly, you make progress faster, and the next debt can be paid off faster than the previous ones. By that time, you will have accumulated a significant amount of money each month to apply toward paying off your largest debt.
In addition to eliminating balances, the debt snowball method is designed to keep you engaged and motivated at every step.
Builds Motivation Through Quick Wins
Momentum is critical when paying off debt. The debt snowball uses small wins to keep encouraged. With every small debt you eliminate, you reinforce positive money habits and remind yourself that you are capable of being debt-free.
The greatest challenge in debt repayment is staying driven, and this method offers quicker victories. This can work especially well if you have struggled with financial discipline in the past.
Financial stress may incapacitate you and make it difficult to function. Having proof that you are making progress — no matter how minimal — helps you feel in charge. With each debt you eliminate, you feel a weight removed from your wallet and the validation of responsible money behavior.
Simplifies the Debt Repayment Process
Having multiple debts to pay can be confusing, but the debt snowball simplifies things. Instead of having to keep track of multiple varying interest rates and payoff times, you simply focus on one debt at a time while making minimum payments and basically pressing pause on the others.
With fewer decisions to make, you’ll be less prone to second-guessing yourself or being derailed by money stress. Using a simple, repeatable process eliminates guesswork and keeps you on the right path.
Reduces Financial Stress
Debt is a significant source of stress, but having a plan puts you in control. Using the debt snowball, you can make progress rapidly and start to feel better — even if it will take a while to pay everything down.
Seeing balances decrease instead of being stuck in a loop of paying what you can when you can on all of your credit cards can be a relief. This plan enables you to feel in control and less overwhelmed.
Advantages and Potential Disadvantages
Even though the debt snowball technique has many advantages, potential drawbacks must be considered when determining whether it is appropriate for you.
Advantages
Here are the reasons why you may want to become a snowballer.
- Encourages Consistent Progress: Small wins are cumulative. By paying off debts individually, you are constantly making progress. With every balance you pay off, you are that much closer to being financially free.
- Strengthens Money Habits: The debt snowball instills positive habits for budgeting, saving, and spending. Over time, these habits lead to a solid financial foundation.
- Reach Debt Freedom Sooner: By paying off debts, you free up money for other goals. Are you looking to save, invest, or travel? This process accelerates your journey toward financial independence.
Possible Disadvantages
Alas, the snowball method is not perfect. Here are some of its shortcomings:
- Overlooks Interest Rates: Since the method is based on balances rather than rates of interest, you may pay more in interest than you would with other approaches, such as the debt avalanche method — which I’ll discuss below.
- May Require Extra Funds for Faster Results: If you do not have extra funds to throw at your lowest balance debt, progress will be slow. Bringing in more money — through a side hustle or budget changes — can make it move more quickly.
- May Delay Larger Debt Payoff: If you have a big balance on a high-interest loan, it could take years to pay it off. If you are worried about paying a lot in interest charges, another tactic could be more appropriate.
The Debt Snowball vs. Other Options and Methods
Not all debt repayment plans are created the same. Some are designed to save you money on interest in some cases, and others help you make repayment more manageable. Knowing the differences can let you choose the right one for your needs.
Debt Avalanche Method
The debt avalanche method is another common debt payoff technique. Instead of focusing on balances, it attacks the highest interest rates.
This method saves you more money in interest over time, but it may not be as much of a psychological boost as the snowball technique. If you are highly disciplined and are more concerned with long-run savings, the avalanche method may be a better fit.
Debt Consolidation
With Debt Consolidation, you take out one large loan that covers all of your debts. This, basically, combines multiple debts into one loan with a lower interest rate.
Debt consolidation can simplify repayment and cut down on monthly payments but can make the process longer. Also, if you have bad credit, you may not qualify for a loan large enough to consolidate all of your debt, and if you do, the interest rate could be sky-high.
But if you are struggling to keep up with multiple debts and can get a loan at a rate lower than what you are paying on your outstanding debts, this could be a suitable solution.
Balance Transfer
A balance transfer allows you to move high-rate credit card debt to a card with a lower, or sometimes 0%, interest rate. With a 0% APR promotion, you have a certain amount of time to pay off the transferred debts without paying interest.
But once that period ends, you’ll pay the regular interest rate on the leftover balance.
Balance transfer credit cards can save you a ton on interest, but they usually require a good credit history to qualify. Paying off the balance in the introductory period is an effective way to reduce debt in a brief period, so you’ll need some financial discipline to maximize this strategy as well.
The Debt Snowball Method Can Help Regain Control Over Debt
The debt snowball method is a step-by-step solution for taking control of your finances. With small victories, you gain momentum that makes you more likely to stay committed to paying off all of your debt.
Whether you use the snowball method or another alternative, the most important part is getting started. If you have difficulty with long-term motivation, you might be well suited to using the debt snowball.
With small wins, you build momentum that carries you forward. Although the debt snowball is not as cost-effective as other approaches, it can help you create positive spending habits, making it a useful tool for a debt-free life.
