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Debt Snowball Method: 6 Easy Steps to Decimate Debt

October 24, 2021

At first glance, the process of paying off debt seems like a pretty straightforward concept. You borrow money, you make payments each month, and eventually the debt is paid. But what if there was a strategy you could use to pay down debt even sooner—and stay motivated along the way?

That’s the basic premise behind the debt snowball method, a popular approach to paying off loans and credit cards that could be your ticket to tackling debt once and for all.

What is the Debt Snowball Method?

The debt snowball method is a strategy that uses motivational momentum to reduce, and eventually eliminate, your debts. You pay off each debt starting with your smallest and work your way up to your largest. The quick wins from paying off smaller debts give you the motivation you need to keep going until you are debt free.

How the Debt Snowball Method Works in 6 Easy Steps

How does it work? A debt calculator can do some of the number-crunching for you, but if pencil and paper is more your style, here’s what to do:

1. List all your outstanding debts.

Write down the name of each loan or credit card, its balance, and the minimum monthly payment you owe. For example, suppose your debts include:

  • An auto loan with a $3,000 balance and a $350 monthly payment
  • A personal loan with a $700 balance and a $125 monthly payment
  • A credit card with a $10,000 balance and a $200 monthly payment

2. Sort your debts from smallest to largest outstanding balance.

Using our example, you would reorder your list like this:

  • Personal loan with $700 balance—$125 per month
  • Car loan with $3,000 balance—$350 per month
  • Credit card with $10,000 balance—$200 per month

3. Pay extra toward your smallest debt.

It’s essential that you keep paying your monthly minimums to avoid late fees and dips in your credit score. But, once you’ve paid that, use any additional debt repayment funds you have to put toward your smallest debt payoff.

Going back to our example, you would keep paying the required minimums of $350 and $200 toward debts two and three, respectively.

After making those minimum payments, let’s say you discover an extra $100 on hand to accelerate your debt repayment. You add that $100 to the $125 monthly minimum you’re already paying toward debt one, your low-balance personal loan.

4. Keep at it until you pay off your smallest debt.

Repeat step three, paying the most you can each month toward debt one until your balance hits zero. If you’re able to continue contributing that extra $100, you’ll pay off your $700 balance within just four months (take a moment to celebrate your awesome achievement!).

5. Roll your money into your second-smallest debt.

Now that your personal loan debt is a thing of the past, it’s time to focus on debt two, your auto loan. Again, keep paying the minimum toward debt three. But now, in addition to the $350 you were already paying toward debt two each month, lump in the $225 you had been putting toward debt one. Now, you’ve snowballed your money and are able to pay a whopping $575 on your car loan every single month.

6. Keep going until your debt is gone.

Repeat the payment structure outlined in step five until debt two is gone. Then, roll your payments once more, and tackle the next debt on your list. Keep at it, paying and rolling money from one debt to the next, until you’ve crossed off every liability on your list.

Who Should Use the Debt Snowball Method?

The debt snowball method is a good option for those who are motivated by fast results. Paying off that first small debt can feel very rewarding, giving you the motivation you need to keep going until all your debts are paid. 

However, it’s important to understand that this method of debt repayment works best if you earn a regular income and have a bit of wiggle room in your budget. It doesn’t have to be much, but you do need to be able to pay a bit more towards debt than the minimum.

7 Debt Snowball Method Mistakes to Avoid

1. Trying to pay off multiple debts at once.

The debt snowball method is all about tackling one debt at a time. It may be tempting to put your extra cash toward more than one debt, but this can slow your progress and cause you to feel overwhelmed, potentially derailing the whole process. 

2. Avoiding other important payments.

Make sure not to get so caught up in the debt snowball method that you neglect your other bills. If, for example, you miss mortgage or utilities payments, your credit score will almost certainly take a hit, cancelling out much of the progress you’ve made with your debt repayments. 

3. Not rolling over your payments.

For the debt snowball method to work, it’s essential that you roll over your payments into the next smallest debt once you’ve paid off the previous one. Using any of that money for other purposes will only slow you down. 

4. Adding to your debt.

It may seem like a no-brainer to not rack up credit card debt while you’re working on paying it off, but old habits die hard. If you think you’ll be tempted, leave the card at home or remove the saved data from your favorite online shopping sites. 

5. Burning through emergency savings.

Don’t use your emergency fund to finance your debt snowball payments. Regardless of your amount of debt, you’ll still want to have money set aside in case you’re blindsided by an unforeseen expense. Don’t have an emergency fund? Consider building one up before you begin paying down debt. 

6. Forgetting to track your progress.

Part of the magic of the debt snowball method is the ability to see change happening quickly. So keep close track of your progress and give yourself a gold star for each win. You’ve earned it. 

7. Losing sight of your goals.

Paying down debt is no easy feat, so remember you’re doing this for a reason. Make a list of all the advantages you hope to gain by paying your debts (a better credit score, financial security, access to better loans, etc) and revisit it regularly. Seeing those goals written down can help you make it to the finish line. 

Is the Debt Snowball Method the Right Strategy for You? (+ Alternatives)

Countless people have found success with the debt snowball strategy, but it isn’t the only approach out there for debt reduction. One of the following strategies may work better for you:

Debt avalanche method

The debt avalanche method is a method of paying off your debts with the highest interest rate first. The advantage of the debt snowball strategy is that it increases your confidence. You can build momentum as you pay off entire lines of high-interest debts one-by-one. It also saves you money in the long run. By paying off the accounts with the most interest first, you reduce the interest you pay.

Debt snowflake method

The debt snowflake method involves finding extra money in your budget and making extra micropayments to chip away at your debt. You can combine the debt snowflake method with the debt snowball or the debt avalanche. Or, you can use it to pay off a single debt faster and save money on interest.

Refinancing 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, you have a co-borrower, or you can get a better interest rate on the refinanced loan than with your existing lines of credit. 

Consolidating debt

With a debt consolidation loan, you roll all of 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, lessening the total cost of your debt. 

The Bottom Line

When you’re juggling thousands of dollars of debt, it’s easy to feel like your financial life is out of control. But fortunately, the secret to conquering your money could be simpler than you think. By committing to tackling your debt one account at a time and allowing yourself those small victories, you might find your whole financial situation more manageable. If this sounds like it could work for you, the debt snowball method might just be what you need to accelerate your journey to a debt-free life.

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, first list all of your existing debts from smallest to largest. Then, make minimum payments on all your debts, but allocate as much as you can towards the smallest debt until it’s paid in full. Repeat this process using the next smallest debt until everything is paid off.

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

It depends. With the debt avalanche method, you’ll pay off debts with the highest interest rate first, which can save you more money overall. With the debt snowball method, you’ll pay off your lowest balances first, which can help keep you motivated and encouraged to keep going. No matter which method you choose, the secret to success is commitment.

Is it better to pay off small debts first?

Sometimes. Paying off small debts first can give you the positive reinforcement you need to continue healthy financial habits and meet your goals. With every debt you pay off, you might feel more motivated to continue forward.

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