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What is the Debt Snowball Method and How Does it Work?

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Sometimes the hardest part of making a debt payoff plan is prioritizing. Where do you start? In this guide, we'll explain how the debt snowball method works, and how you can use it to pay off debt.

What is the debt snowball method?

The debt snowball method is a strategy for prioritizing your debts by ordering them based on the size of the balance. Then you'll pay them off from the smallest balance to largest.

As each debt gets paid off, you roll over that money into the next debt. Your payments get larger as you go, just like a snowball growing as it rolls down a hill.

How to use the debt snowball method

First, you need to make the minimum payment for each of your debts. This is the amount you need to pay each month to avoid late fees or credit problems.

Next, consider how much extra cash you can put toward debt payments. The more money you can put toward paying off your debts, the faster it will go. (If possible, avoid taking on any new debt while paying off your existing debt.)

Order your debts by size, from smallest balance to the largest balance. Any extra money should go to the debt with the smallest balance first.

Once you've paid off your smallest debt, move on to the second-smallest debt. All of the money you were putting toward your smallest debt should go to the next debt. This includes the extra money, plus the money for the minimum payment.

Every time you pay off a debt, roll over the money from that payment to the next debt. (In other words, you should always be putting the same total amount of money toward debt payments overall.) Tackle your largest debt last.

Example of the debt snowball strategy

Some things are easier to understand when you can see some numbers, so here's an example.

Let's say you have five debts, as in the table:

Debt Balance Minimum Payment
A $100 $25
B $500 $35
C $1,275 $70
D $3,000 $130
E $7,500 $250

With the debt snowball method, you would follow these steps:

  1. Make the minimum payment for all five debts.
  2. Put any extra money toward Debt A.
  3. Pay off Debt A. Put all of the money you were using for Debt A toward Debt B.
  4. Pay off Debt B. Put all of the money you were using for Debt B toward Debt C.
  5. Pay off Debt C. Put all of the money you were using for Debt C toward Debt D.
  6. Pay off Debt D. Put all of the money you were using for Debt D toward Debt E.
  7. Pay off Debt E. You are now debt free!

In this scenario, you put $510 a month toward minimum monthly payments. Let's say you have enough money to make all of your minimums, plus an extra $50 a month.

For the first two months, you would pay a total of $75 toward Debt A. (The $25 minimum payment, plus the extra $50.) After just two months, you've paid off Debt A completely.

Next, you put the $75 you were paying to Debt A toward Debt B. Your total monthly payment for Debt B becomes: $35 + $75 = $110. (The minimum payment for Debt B, plus the money you were putting toward Debt A.)

When you pay off Debt B, you will rollover that $110 toward Debt C. Paying off Debt C lets you put $310 toward Debt D. By the time you get to Debt E, you can make monthly payments of $560. (That's the money from all of the minimum payments, plus the extra $50.)

RELATED: See The Ascent's debt snowball calculator to see which debts you should pay off first.

Why the debt snowball method works

The snowball method is a debt payoff plan that relies on the power of motivation. By focusing on your smallest debt first, you can pay it off quickly. Instead of spending years making slow progress on a large debt, you get a fast win.

That progress will give you a sense of achievement, which can motivate you to keep going.

As you pay off each debt, you roll over the payments into the next. So, although the balances get larger, so do the payments. This helps you keep up momentum; you'll always see progress being made. When you reach your largest debt, it's now your only debt. This can make it a lot less intimidating.

The trouble with the debt snowball

While the debt snowball method can be great for some people, it does have a major downside: It's expensive. That's because it basically ignores your interest rates.

The longer you have a given debt, the more you'll pay in interest. High-interest debts, like credit card debt, can accrue a lot of fees over time. If your largest debt is also your debt with the highest interest rate, you could wind up paying thousands in interest fees by the time you're debt free.

That extra interest also means it will take you longer to pay off all of your debt. Each minimum payment will go toward paying interest fees first. Only after the interest fees are covered does the remainder go toward your principal balance.

One way to limit this problem is to reduce your credit card interest rate. The best way to do this is with a balance transfer credit card. This lets you transfer a credit card balance to a card with a lower APR, reducing your interest fees. (Check out the balance transfer calculator to see how it works.)

The debt snowball method vs. the debt avalanche method

If you're interested in paying off debt as fast as possible, the debt snowball method may not be for you. Instead, you may prefer the debt avalanche method.

The debt avalanche method has you prioritize your debts by interest rate. Instead of focusing on the smallest debt first, you focus on the one with the highest interest rate. When you pay off that debt, you go to the debt with the second-highest rate -- and so on.

Because you're paying off your most expensive loans first, you'll pay less in interest overall. You will also become debt free faster if you don't have to pay for extra interest fees. (You can use a credit card interest calculator to get an idea of how interest rates can impact debt repayment.)

Both of these methods have their own pros and cons. If you're someone who needs a win to stay motivated, the snowball method may work best. However, if motivation isn't a problem, the avalanche method can save you money.

Learn more: Debt Snowball vs. Debt Avalanche

Debt Snowball Method

Pros:

  • Pay off your first debt quickly
  • Easier to stay motivated

Cons:

  • Costs more in interest fees
  • Can take longer to become debt free

Debt Avalanche Method

Pros:

  • Minimizes your interest fees
  • Become debt free faster

Cons:

  • Can take longer to get first "win"
  • Harder to stay motivated

Some people like to make their own strategy with a mix of the two methods. You could even split the difference by putting half of your extra money toward the smallest debt, and half toward the most expensive debt.

Another alternative is to forgo either method in favor of debt consolidation. With consolidation, you use a personal loan to pay off all of your high-interest debts. Then you only need to make a one loan payment, ideally with a lower interest rate. Consider comparing debt consolidation lenders before choosing a debt repayment method.

FAQs

    1. Order your debts by size, from smallest to largest
    2. Make the minimum payment for all of your debts
    3. Put any extra money toward your smallest debt
    4. Once a debt is paid off, rollover the money to the next debt
    5. Repeat until you pay off your largest debt
  • Using the snowball method can help you build confidence and stay motivated. By paying off your debts smallest to largest, you get a quick win at the start. You'll also minimize the gap between debt payoffs.

  • The debt snowball method is best for people who have trouble staying motivated. Snowballing your debt gives you regular "wins" that can help you maintain your momentum. However, it can be more expensive because it doesn't consider interest rates. So, if you're worried about interest fees, consider the debt avalanche method.

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