What Is The Debt Snowball Method & How To Use It
Debt can feel overwhelming, especially if you don’t notice it creeping up through lifestyle inflation or simply by avoiding your finances. Whether it’s from student loans, credit cards, or unexpected expenses, the weight of multiple payments and high interest can chip away at your peace of mind. You’re not alone, and the good news is, you don’t have to tackle it all at once. One strategy that might help you take that first step is the debt snowball method.
What Is the Debt Snowball Method?
The debt snowball method focuses on paying off your debts from the smallest balance to the largest, regardless of the interest rate on the debt. This is important since this is one of the clearest distinctions between the strategies. The debt snowball method was widely popularized by Dave Ramsey, who initially promoted the debt paydown method.
How The Debt Snowball Strategy Works:
Let’s go over the way to implement this strategy. Let’s use these numbers to help give an example for this breakdown. In this scenario, you have a $12,000 credit card balance with a 24.5% APR, a $1,500 personal loan balance with an 11% APR, and a $5,500 student loan balance with a 9% APR. For this example, let’s also assume that minimum payments are $240 for the credit card, $50 for the personal loan, and $70 for the student loans. Let’s get started working through this scenario!
1) Start By Listing All Your Debts From Smallest To Largest Balance And Include Interest Rates
To start this strategy, you will want to first perform the uncomfortable process of listing all of your debts from smallest to largest. This will help with determining your current financial health. The reason it is uncomfortable is that no one likes to see the areas where we are falling short. It is best to be honest with yourself here, since it will determine the best way to tackle your debts.
During this process of identifying and listing your debts, you will be reorganizing your debts by the total size of the debt. For instance, if you have a $12,000 credit card balance, a $1,500 personal loan balance, and a $5,500 student loan balance, the loan would be first to pay off. For this strategy, the APR is not factored in since we are solely looking at the total amount.
2) Make Minimum Payments On All Debts
The purpose of only making the minimum payments on all your debts is to help focus the majority of your energy on tackling one source of debt at a time. The minimum payments will cover the other debts, while the debt with the smallest amount will receive the majority of the focus. In this scenario, you’ll be paying $360 for the minimum payments across each account.
3) Put Extra Money Toward The Smallest Debt
This step allows you to focus on the smallest debt to be paid off first. Let’s say you make $1,500 a month after your bills are paid off. If your minimum payment on your debt isn’t factored in, and you owe $360 a month for minimum payments, you would have up to $1,140 to put towards your smallest debt. Simple, right? Well, kind of because now you’ll want to factor in your food, gas, and other smaller payments you may make before your next paycheck. You’ll want to factor this step in so you aren’t too uncomfortable and get discouraged too soon.
In the situation above, let’s say you save $640 for yourself and put $500 toward your smallest debt. In this scenario, you will now have that extra $500 that can make an immediate impact on your smallest debt. If you owed $1,500 on that smallest debt, you could pay it off in 3 months. Of course, the more you put towards that debt, the faster you can pay it off. Just remember that the $640 you’re saving for yourself will need to last you the whole month, so that’s around $160 a week or $22.85 per day for food, gas, fun, etc.
4) Roll What You Were Paying Into The Next Smallest Balance
So you’ve paid off your lowest debt at this point, congrats! That’s an amazing start, and you should be proud of yourself. Now that the $1,500 debt is paid off, you can focus on the next lowest amount. That would be the $5,500 student loan bill in this scenario. Since you were paying the minimum amount on the bill, you were still able to make some progress, but you still owe upwards of $5,300 on the student loan. On the plus side, now that the previous debt is paid off, you have that $550 that you can put towards the student loan debt ($50 minimum payment now available, $500 extra put towards debt).
5) Repeat Until You’re Debt-Free
This is where you’ll need to dig in deep and really stay disciplined. It can be rough to see that the money is not going directly to your lifestyle, but repeating the cycle once each debt is paid off is what makes the debt snowball method effective. As you pay off the debts and accumulate more liquid income, you are piling on more cash to put towards paying off other debts.
Why People Love The Debt Snowball Method
People love the debt snowball method because it delivers fast, tangible wins. When you knock out a small debt quickly, it feels like progress, and that feeling can be addictive in the best way. For many, it’s easier to stay consistent when there’s visible success early on. This method turns your debt payoff into a series of small victories, each one building momentum for the next. It’s especially helpful if you’ve struggled with sticking to long-term plans in the past, because the snowball method rewards action right away, not just in the distant future.
The Debt Snowball Pros:
Builds confidence and discipline.
Encourages consistency.
Great for people who need positive reinforcement.
The Debt Snowball Cons:
You might pay more in interest over time.
Doesn’t prioritize financial efficiency.
Debt Snowball Method Vs Debt Avalanche Method
The debt snowball and debt avalanche methods both offer structured paths to becoming debt-free, but they take different approaches. The snowball method focuses on paying off the smallest balances first, which creates quick wins and builds emotional momentum. The avalanche method targets debts with the highest interest rates, helping you save more money over time. While snowball is often preferred by those who need motivation to stay consistent, avalanche appeals to those who are driven by numbers and long-term savings. Neither is necessarily “better” since it all depends on your personality and what will keep you moving forward.
Should You Use The Debt Snowball Method?
If you’re feeling stuck or unsure where to begin with paying off debt, the debt snowball method can be a great place to start. It’s simple, action-focused, and designed to build momentum right away. You won’t necessarily save the most money on interest, but you might gain something just as valuable- confidence and motivation. Sometimes, seeing that first balance hit zero is the push you need to keep going. And once you’ve built that habit, you can always adapt your strategy down the road. The important part is starting.
Disclaimer:
This content is for informational purposes only and does not constitute financial advice. The information provided is based on personal opinion and general knowledge. You should consult with a licensed financial advisor or professional before making any financial decisions.
Debt Snowball Method FAQs
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The debt avalanche method is a debt repayment strategy that prioritizes paying off the debt with the highest interest rate first, regardless of the balance. While you continue making minimum payments on all your debts, any extra money goes toward the account that’s costing you the most in interest. Once that’s paid off, you move to the next highest rate. Over time, this method saves more money and can get you out of debt faster, if you’re consistent. It’s especially appealing for people who are motivated by efficiency and want to minimize how much they pay overall.
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Yes, Ramsey Solutions along with other financial brands have Debt Snowball calculators that can assist with determining the effectiveness of the debt snowball strategy for your debts.
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Debt consolidation is the process of combining multiple debts, like credit cards, loans, or medical bills into one single payment. Often this is through a new loan or balance transfer. The idea is to simplify your payments and, ideally, lower your overall interest rate. This can make your debt more manageable and potentially save you money in the long run. It’s not a magic fix, but for people juggling several high-interest debts, consolidation can be a helpful step toward regaining control and creating a clear payoff plan.
