When you owe a lot of creditors, it can be hard to know who to pay off first. You could throw a little extra on every account each month, but that can feel like a slog. Instead, the debt snowball method might be more your speed.
The debt snowball method directs your focus to your smallest debts first. Once you’ve paid that one off, you move on to the next smallest. Learn how the debt snowball method works to decide if it’s right for you.
Imagine rolling a snowball down a hill: It starts off small but as it goes, it gathers more snow and gets bigger and bigger. Eventually, you’ll hardly need to push it at all — it’s powered by its own momentum. That’s the philosophy behind the debt snowball method.
When using the debt snowball method, you’ll prioritize paying off your smallest debts first. Since you owe less on these accounts, you’ll pay them off faster than if you focused on those with bigger balances. The psychological boost that comes with paying off an account completely could give you motivation to continue paying what you owe until you’re free from debt.
How to start the debt snowball method
Learning how to snowball debt is simple. Follow the steps below to get started:
1. Gather your bills
To better understand your financial situation, gather your debt-related bills and highlight your monthly minimum payments and remaining balances. These could be credit card bills, medical bills, student loans, car loans and personal loans. Exclude your mortgage, as this is generally considered good debt.
2. Make a debt snowball worksheet
Creating a worksheet helps you figure out which debt to work on first. It doesn’t have to be complicated — you can even use a sheet of scratch paper.
On your worksheet, list your debts and use the total amount you owe to order them from smallest to largest. Then, create two columns: one for your minimum monthly payment and another for the amount you actually pay each month.
With the exception of your smallest debt, the amount in your “current payment” column should match what’s shown in the “minimum monthly payment” column. For your smallest debt, tack on an additional amount you can pay on top of the minimum amount due.
See the example below for an example of what a debt snowball worksheet could look like.
| Type of debt | Total amount owed | Minimum monthly payment | Current payment |
|---|---|---|---|
| Medical bill | $1,500 | $50 | $50 + $100 additional amount |
| Credit card #1 | $4,000 | $160 | $160 |
| Credit card #2 | $6,000 | $240 | $240 |
| Car loan | $20,000 | $380 | $380 |
3. Pay down debt
Use your worksheet to guide the process of paying down your debts in order. When your smallest debt is paid off, cross it out and repeat the process with your next smallest debt.
It’s important to note that no matter what budgeting method you use, you should pay at least the minimum monthly payments on all of your debts. Don’t be so aggressive paying down your smallest debt that you can’t keep up on your other accounts. Just one missed payment can tank your credit score by as much as 180 points.
Yes! As long as you stick with it, the debt snowball method can help you pay off debt faster.
Consider our hypothetical scenario above. If you were to make only the minimum amount due on all of your debt, it would take about five years to become debt free. In contrast, using the debt snowball method by paying an extra $100 a month on your smallest balance, you’d be out of debt in about three years and save nearly $1,800 in interest.
The debt snowball method is effective, but it’s not for everyone. Consider the pros and cons before committing to this debt repayment strategy.
| Pros | Cons |
|---|---|
It’s free. You don’t have to pay to access the debt snowball method. Won’t damage your credit. Unlike some debt management strategies, the debt snowball method won’t cause an initial drop in your credit score. It works. You’ll pay off your debt faster and save money in interest with the debt snowball method. | Not possible if you’re on a tight budget. You must have extra money to put toward your smallest debt to use the debt snowball method. Not the best choice if you have unmanageable debt. The debt snowball method won’t help you if you have more debt than you can pay. May need to juggle bills. The debt snowball method doesn’t reduce the number of bills you pay each month. |
Alternatives to the debt snowball method
Everyone’s personal finance situation is unique, so you might find that a different approach suits you better.
Debt avalanche method
Like the debt snowball method, the debt avalanche method requires you to pay more than the minimum amount due on one debt at a time. However, rather than focusing on your smallest debt, you’ll focus on your debt with the highest interest rate.
When comparing the debt avalanche vs. debt snowball, both work just about equally (although the avalanche may be slightly more effective if you have a lot of high-interest debt). Despite this, the debt avalanche method can pose a psychological challenge if you’re chipping away at the same debt for a long time.
Money management tool
If you’re having a hard time managing your finances, signing up for a money management tool can help you create a budget and take control of your spending habits.
Debt consolidation loan
For those that owe on multiple credit cards, a debt consolidation loan may help reduce your average interest rate as well as streamline your budget. With this, you’ll take out a personal loan in the amount of the total debt you’re in. Then, you’ll use the loan to pay off your multiple debts, leaving only your debt consolidation loan to pay.
Debt consolidation loans make the most sense if you can qualify for a lower interest rate than what you’re paying across your current debt.
Debt management plan
If you have more credit card debt than you can handle — and are ready to change the behaviors that got you overextended in the first place — a debt management plan (DMP) might be what you need.
When you’re under a debt management plan, a credit counseling service will help you create a budget and may also negotiate your debt or interest rates on your behalf. Credit counseling is typically offered by nonprofit organizations at no-or-low cost. Do know, though, that you usually can’t use your credit cards during the process (which can last from three to five years).
It’s human nature to be gratification-driven, which is what the debt snowball method is all about. But the only way to know if the debt snowball is right for you is to give it a try.
In the end, any strategic attempt toward getting out of debt is a worthy effort. The most important thing is that you don’t lose motivation. The reality is that any debt management strategy can take years to come to fruition. But remember — an object in motion tends to stay in motion, and getting started is sometimes the hardest part.
