What is the debt snowball method?

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

The debt snowball method promises small, steady victories in your battle against your debt demons, and it gives you confidence as you roll your way to freedom. It’s often contrasted with the debt avalanche method, which sacrifices quick wins for long-term gain.

How does the debt snowball method work?

No matter what the interest rates look like, the debt snowball method focuses on paying off 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 have an additional $300 a month to devote to your debt thanks to a side hustle.

Because the $2,000 personal loan is the smallest debt, you would start there. Meanwhile, 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 only have 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 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.