Debt Snowball Method: What It Is and How It Works

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The debt snowball method is a strategy for paying off your debt that can help keep you motivated.

To pay for school, you probably took out several different student loans. In fact, educational finance website Saving for College found that the typical graduate will have 8 to 12 loans when they leave school.

With so many different loans, you may be overwhelmed and not know where to start. With the debt snowball approach, you’d tackle your loans by paying extra money toward the account with the lowest balance first.

To see how this technique works, along with its pros and cons, let’s address the following questions:

What is the debt snowball method?

The debt snowball method isn’t the only way to pay off your debt, but it is a popular approach. With the snowball debt payoff strategy, you order all of your debt from the smallest balance to the largest and target the smallest accounts first.

With the debt snowball, you achieve quick wins as you pay off balances. Seeing progress and eliminating debt gives you a sense of achievement and keeps you focused on your ultimate financial goals. It can be incredibly effective; one woman paid off $89,000 in student loans with this approach.

How does debt snowball work?

To use the debt snowball method, create a debt snowball spreadsheet and list all of your existing debt, minimum monthly payments, and interest rates. Include your student loans, credit cards, personal loans, auto loans and mortgage, if applicable. Order your debt from the one with the smallest balance to the one with the largest balance. For example, pretend you have the following forms of debt in your name:

  • $20,000 in federal student loans
  • $8,000 in private student loans
  • $10,000 in a car loan
  • $6,000 in credit card debt

On your debt snowball worksheet, you would ignore the interest rate and order the debt as follows:

Debt Total Owed Interest Rate Remaining Repayment Term Minimum Payment Due
Credit Cards $6,000 20% APR Revolving $180
Private Student Loan $8,000 7% 10 Years $93
Car Loan $10,000 5% 5 Years $189
Federal Student Loan $20,000 4.53% 10 Years $208

In total, you would owe $44,000 in debt and have to pay $670 in minimum monthly payments. To follow the debt snowball technique, you continue making the minimum payments on all of your accounts. Any extra money you have left after paying for your essential expenses goes toward the debt with the smallest balance. In this case, let’s say you could pay an additional $100 per month toward your debt. With the debt listed in this chart, you’d apply your extra $100 toward your credit card debt first.

Once you’ve paid off your credit card balance, the snowball comes into play. You’d roll your minimum monthly credit card payment — $180 — plus the $100 in extra payments you were making toward the debt with the next lowest balance — your private student loan.

You’d continue this strategy until all of your debt is paid off and you’re 100% debt-free. And you may be surprised at how quickly it can work — one couple paid off $52,000 in just 18 months by using the debt snowball method.

You can use UnDebt.It to see how long it will take you to pay off your debt. It’s completely free to use, and you can create a one-off payment plan with its debt snowball calculator without making an account.

Who should use the debt snowball method?

  • You need an extra dose of motivation: According to a study in the Journal of Consumer Research, the debt snowball method is the most effective repayment strategy because consumers get the biggest burst of motivation from seeing large balance reductions in a single account. By paying down your balance quickly, you can be inspired to keep going.
  • You like to see progress: With the debt snowball technique, you can see progress quickly. By tackling the debt with the smallest balance, you can pay it off rapidly and move on to the next-smallest balance, making you feel like you’re making more headway against your debt.
  • You want a debt repayment strategy that’s easy to follow: Following the debt snowball is simple. You can set up automatic payments for the minimum due on each account, and put your snowball money toward the smallest balance.
  • You don’t want to utilize other debt management techniques: Other strategies can be more financially effective, such as student loan refinancing and debt consolidation. But if your credit is less-than-stellar, you may not qualify for a loan. If that’s the case, following the debt snowball strategy could help you pay off your debt and improve your credit.

Who shouldn’t use the debt snowball method?

  • You want to save as much money as possible: With the debt snowball, you don’t pay attention to interest rates, only the account balances. Because you target the smallest balances rather than the debt with the highest interest rates, you could end up paying more money in interest charges over time.
  • You want to be completely debt-free more quickly: More interest can accrue with the debt snowball method, causing you to be in debt longer than if you tackled the debt with the highest interest rate first. While you’ll have more quick wins, you’ll carry debt for a longer period of time.
  • You get overwhelmed by managing multiple accounts: Keeping track of multiple forms of debt and minimum monthly payments can be difficult. If it’s hard for you, debt consolidation or student loan refinancing may be a better approach because you can streamline your payments.
  • You don’t have extra money for additional payments: For the debt snowball technique to be effective, you have to make extra payments toward the account with the smallest balance. If you don’t have additional money for payments, you won’t make progress. If you’re struggling to make ends meet, review your budget, think about picking up a side hustle or meet with a credit counselor to discuss your options.

How is debt snowball different from debt avalanche?

If the debt snowball method doesn’t sound right for you, there’s another debt payoff strategy that may be a better fit: the debt avalanche approach. The debt avalanche method differs from the debt snowball in a few key ways:

  • You pay off the debt with the highest interest rate first: Instead of tackling your debt with the lowest balance, you order your accounts from the debt with the highest interest rate to the one with the lowest. You make all of the minimum monthly payments and put extra money toward the debt with the highest interest rate.
  • You make slower progress: Because you’re paying off the accounts with the highest interest rate rather than the debt with the smallest balance, it can take longer to pay off each account. It can feel like you’re not making as much progress compared to the quick wins of the debt snowball method, so it’s important that you’re focused and dedicated to your financial goals. You’ll become debt-free sooner, but it takes more discipline over time.
  • You save money in interest charges: While the debt avalanche technique doesn’t offer the quick wins of the debt snowball method, it is more cost-effective. By paying off the highest-interest debt first, you’ll save more money in interest charges over time and become debt-free faster.

To figure out which plan is best for you and how much you’d pay under each debt repayment method, this snowball vs. avalanche calculator (courtesy of SLH companion site MagnifyMoney) can be useful.

Jolene Latimer contributed to this report.