Sometimes, paying off debt requires a mental boost. That’s why some borrowers turn to the debt snowball method to finally get rid of their loans for good.
While other get-out-of-debt strategies can be cheaper — you’d likely pay less in interest charges, for instance, by using the debt avalanche method — the debt snowball method feels better to some people.
“If it was all mathematical, we wouldn’t get into debt in the first place,” said Jeff Proctor, co-founder of the financial advice website DollarSprout.
Proctor would know: A few years after graduating from Virginia Tech with a biochemistry degree, his debt had ballooned to nearly $30,000.
“I had $10,000 in student loans in two different loans, about $1,500 in credit card debt, and $16,000 in car debt,” said Proctor. In just 18 months of using the debt snowball method, he’s paid off his credit cards and brought his student loan balance down to $4,000.
Here’s how this debt repayment strategy works and why so many borrowers are using it successfully.
How does the debt snowball method work?
If you’re able to make extra payments each month, the debt snowball method helps you prioritize which loan to pay off first.
To use this strategy, rank your loans from the smallest to the largest balances. Continue to make the minimum payments on all your accounts, but direct any extra money toward your smallest loan. When that’s fully paid off, begin working on the next lowest balance in line.
In Proctor’s case, he tackled his $1,500 credit card debt first.
“My lowest debt happened to be my credit card debt, which was also the highest interest percentage,” Proctor said. He quickly got rid of that debt by paying about three to five times more than his monthly minimum payment.
“From there I went to the next lowest debt, which was one of my student loan debts,” he said. “I paid a bit extra for a few months [and] then made a lump sum payment of around $3,000 to completely knock it out.”
If you’re considering the debt snowball method, our prepayment calculator can help you determine how much money you’ll save by paying your loans off ahead of schedule.
Pros and cons of using the debt snowball method
“Getting out of debt is as much psychological as it is financial,” said Caden Rhoton, founder of Dime Dad, a financial blog he started to help young parents like himself make smart financial choices. “Once you pay off your small debts, the momentum you start to feel is almost tangible.”
The mental boost people get from consistently eliminating their loans is the biggest advantage to the debt snowball method.
“Getting out of debt can be a long road, and the quick wins experienced by eliminating small loans using the snowball method provide the spark needed to keep going,” Rhoton said.
That’s what made Proctor pick the method for himself. “The debt snowball method is very effective in one area that isn’t quantifiable — human emotions,” said Proctor. “This method is all about instilling the mindset to pay off debt quickly, which of course lends itself to saving you money.”
There is one major drawback to the debt snowball method — mathematically, it’s often not the cheapest way to get out of debt ahead of schedule.
A more cost-effective strategy is the debt avalanche method, under which you tackle the balance with the highest interest rate first. By eliminating your highest-interest loans as quickly as possible, you pay less in total interest charges over time.
But if your highest-interest loan is a large sum, it might take a while to pay it off. That thought isn’t daunting to some borrowers. Knowing you’re saving as much money as possible might be all the motivation you need to stick to your repayment plan.
However, for people like Proctor, opting for a debt repayment strategy they’ll follow through with might be more important. “Personal finance is oftentimes more about human behavior than it is the numbers,” he said.
How else can I save money while repaying my debt?
If neither the debt snowball method nor the avalanche method is appealing, a debt consolidation loan could be another option — it could simplify your payments and offer savings. This is a type of personal loan you can get to pay off and combine all your outstanding debt, leaving you with one new loan to repay.
Consolidating your debt could help you in the following ways:
You could qualify for lower rates, so you’d pay less in total interest charges over the life of your new loan.
With just one monthly payment to make, you could simplify your finances.
A longer repayment plan could qualify you for lower monthly payments, creating more flexibility in your day-to-day budget, though it could increase the total interest you pay.
If you decide debt consolidation is right for you, you can apply for loans online to see if you qualify.
How to know which debt repayment method is right
Picking a method to pay off debt is a personal choice that depends on your monthly budget, savings habits, and financial management outlook.
Ultimately, there’s no right or wrong way — each debt repayment method gets you to the finish line if you follow through with it. What’s important is choosing a strategy to which you can commit in order to finish paying off your debt.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|