What does the debt snowball method look like?

The plan itself is simple: You pay off the smallest debt (or account with the lowest balance) first and make only minimum payments on all of the other outstanding debts.

Once you’ve paid off your smallest debt, you move on to the next smallest debt, and so on.

Like rolling a snowball, the process starts off easy and only gets tough toward the end. But with enough momentum, you’ll be able to keep pushing until you’re completely debt free.

How does it work?

The resulting wheel of snow and its track from a snowball that started rolling down a slope of powder snow in direct sunlight.
Tracy J. Anderson / Shutterstock

No matter what the interest rates look like, the debt snowball method focuses on your smallest debts first.

For example, let’s say you have three debts:

  • A $10,000 student loan at 6.2% interest with a minimum monthly payment of $100.
  • A $6,000 credit card balance at 22% APR with a minimum monthly payment of $120.
  • An interest-free $2,000 personal loan with a minimum monthly payment $50.

And let’s assume that you’ve got an additional $300 a month to devote to your debt by using some of our handy income boosting tips.

The $2,000 personal loan is the smallest, so we start there. Make only the minimum monthly payments on the others: $100 on your student loan and $120 on your credit card. You’ll have $350 remaining to put toward your personal loan: the $50 minimum payment plus your extra $300.

At that rate, you’ll be able to fully pay off the personal loan in a little under six months. Exciting, right? You’ll then move on to the credit card balance, which is your next smallest debt.

You’ll still make the minimum payment of $100 on your student loan, but now you’ll roll the $350 a month you were spending on your personal loan into your credit card payment, causing your $120 credit card payment to snowball to $470.

Once your credit card is fully paid off, you’ll roll that $470 into your student loan payments, contributing a total of $570 every month.

Now you’ve only got one debt left, and you’re able to make more than five times the minimum payment.

Why use the debt snowball method?

The main draw of the debt snowball method is that it helps boost your confidence in your ability to become debt-free.

By starting with the smallest debts you’ll see progress quickly, and that can be a powerful motivator to keep up the good work.

Plus, in addition to cutting down your total number of debts, you’re freeing up more cash to cover your bigger debts down the road.

When the time comes, you’ll be able to put down hundreds of dollars more than the minimum payment on your biggest debt, which will make paying it off seem much more achievable.

Debt snowball vs. debt avalanche

The avalanche in the Himalayas on Anapurna mountain
Ovchinnikova Irina / Shutterstock

The debt snowball and debt avalanche methods are opposites when it comes to the debt you target first.

With the debt snowball method, you only care about the size of the debt and don’t pay any attention to the interest rates. With the debt avalanche method, your interest rates are the most important factor: You pay off the debt with the highest interest rate first and make minimum payments on all the others.

Using the same debts from the example above, you’d start by clearing your $6,000 credit card bill, since it's accruing the highest amount of interest. The longer you leave that interest to accumulate, the more money you’ll owe and the worse your debt problem will become.

The debt avalanche strategy can potentially save you hundreds of dollars in interest, but it will also require more patience — you won’t feel much progress right away, especially if your biggest debts are the ones with the highest interest rates.

If you have nerves of steel, the debt avalanche method might be the way to go. However, Forbes reports that numerous studies have found that consumers are more likely to become debt-free using the snowball method.

Is the debt snowball method the right choice for you?

Happy young businessman reading paperwork at desk in office
Rido / Shutterstock

The snowball method does have its downsides. It leaves you vulnerable to high interest charges on your larger outstanding debts and can cost you more money in the long run.

But if you're a goal-oriented person who needs to see progress in order to keep yourself motivated, the debt snowball method is a great way to tackle the problem.

To reduce the amount of interest fighting you along the way, you might look into consolidating some of your debt with a low-interest personal loan.

If you’ve got multiple credit cards with high APRs, a debt consolidation loan will allow you to trade them all in for a single monthly payment at a lower interest rate.

Several free online services make it easy to compare quotes, so if you’re planning to snowball your debt, it’s definitely worth taking a few minutes to try to reduce your interest.

About the Author

Shane Murphy

Shane Murphy

Reporter

Shane is a reporter for MoneyWise. He holds a bachelor’s degree in English Language & Literature from Western University and is a graduate of the Algonquin College Scriptwriting program.

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