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Debt Snowball Method: 6 Easy Steps to Decimate Debt

mother daughter sledding debt snowball

When you’re juggling thousands of dollars of debt, it’s easy to feel like you’re going to drop some balls. Fortunately, the secret to conquering your money could be simpler than you think. If you’re ready to accelerate your journey to a debt-free life and knock out those loans, credit cards, and lines of credit, the debt snowball method just might be your next big act.

How the debt snowball method works

As any kid knows, building a giant snowball means starting with a tiny ball of snow and slowly rolling it along. As you push and roll, your snowball grows larger as it gathers more snow.

The debt snowball method works in the same way. Start by focusing on paying off just a tiny bit of your debt. Then, as you move along, you will start rolling increasingly larger sums of money from one debt to another until you’re tackling your biggest balances with ease—essentially creating a snowball effect on your debt.

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

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:

  • A car loan with a $3000 balance and a $350 monthly payment
  • A personal loan with a $700 balance and $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:

  1. Personal loan with $700 balance—$125 per month
  2. Car loan with $3000 balance—$200 per month
  3. Credit card with $10,000 balance—$350 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’re doing that, take whatever additional debt repayment money you have and put it toward your smallest debt.

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 payments, let’s say you discover an extra $100 on hand to accelerate your debt repayment. So 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 $225 each month toward debt one until your balance hits zero. Since you started the process with a $700 balance, you’ll hit that milestone 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 car 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 debt list.

The magic of snowballing debt

The beauty of the debt snowball method lies in its appeal to the scientifically proven way our minds work. If you try to take down your largest debt first, you could easily get discouraged. After all, wiping out a huge debt could take years.

When you start with your smallest debt first, you’re setting yourself up for success by reaching your first debt milestone quickly. When you cross that first loan or credit card off your list, that will build motivation and confidence to help you keep going.

Plus, once you move on to tackling larger debts, you’ve got more money to put toward those outstanding balances. Instead of dividing your money across small and large debts simultaneously, you’re putting as much as you can toward the big ones, since you’ve already wiped out the little debts.

Is the debt snowball the right strategy for you?

Countless people have found success with the debt snowball strategy, but it isn’t the only approach out there. Check out the debt avalanche method, and compare and contrast with the debt snowflake method. Another strategy is converting all your various debts into a single, lower interest personal loan with a loan term that doesn’t extend your repayment period.

What’s important is choosing a debt payoff strategy that inspires you to get debt-free as simply and as inexpensively as you can, while keeping your own budget in mind.

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