Debt Snowball Method – Pay Debt Off One at a Time
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Fast Facts
Definition:
Pay off smallest debts first
Primary Goal:
Gain psychological momentum
Simplicity:
Easy to understand and implement
Drawback:
Potentially higher total interest costs
We all get a little impatient sometimes. Imagine playing “Elden Ring,” and the boss kills you for the thousandth time. So you “rage quit” and throw your $70+ controller across the room. The same thing can happen with your debt. You see the mountain before you, get overwhelmed, and, like most of us, avoid the issue and hope it goes away.
Unfortunately, it won’t.
But there is a way to help you avoid rage quitting on your debt. It’s called the debt snowball method.
I think the debt snowball method is the best approach for those who get inspired by immediate success, short-term victories, and quick evidence that their actions are working. Let’s find out how!
Jump To
What is the debt snowball method?
When you start researching the best methods to repay your debt, you’ll come across two common solutions:
- The debt snowball method
- The debt avalanche method
The debt avalanche method, while amazing for repaying your highest-interest debt, takes dedication and discipline. For many, it’s hard to stick with. Hence the “rage quit.” So in this post, we’ll focus on how to get immediate results without being slow or methodical. We’ll focus on the debt snowball method, which involves first paying off your smallest debt.
By focusing your efforts on your smallest balance, you’re likely to succeed in your goal of becoming debt-free. This is because the debt snowball method helps you achieve quick success and grants you inspiration and motivation to stick with your debt payoff goals. And in my experience with personal finance, sticking with it is half the battle!
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How the debt snowball method works
The debt snowball method targets your smallest debt first. In a nutshell, it involves four steps:
- Keep paying the minimum monthly payments on ALL your other debts.
- Identify which of your debts is the smallest.
- Use any extra money to pay off your smallest debt first.
- Once the total amount has been paid, repeat Steps 1-3 for the debt with the next smallest balance.
Let’s explore this in greater detail.
Debt management is a must
Keeping up with your minimum payments is vital regardless of your chosen method. You don’t want your other debts stacking up around you as you focus on one small one. Avoid tunnel vision as you aim for a single target and devote some of your funds to your other debts. Also, do your best to avoid accruing any new debts or personal loans that would only add to the debt mountain you’re trying to eliminate.
Make a list
Organize all your debts from smallest to largest. While the debt avalanche method focuses on your highest interest rate, the debt snowball method focuses on your lowest balance. For example, your list might look something like this:
- $8,000 home improvement loan with a 5.50% interest rate
- $10,000 credit card balance with a 15% interest rate
- $15,000 student loan with a 3.99% interest rate
Note: with the debt snowball method, the interest rate is not considered when sorting the debts. Instead, it’s all about the amount you owe. So, with this example, you would devote all your extra cash to your home improvement loan since that’s your smallest debt.
Prep for making payments
Ideally, before you start the debt snowball method, you will have already established a starter emergency fund of at least 1,000 dollars. This is the first step in Dave Ramsey’s 7 Baby Steps for taking control of your money. According to Dave Ramsey, the debt snowball method is all about seeing the progress that fuels your motivation to keep going.
So, with that emergency fund stashed away, focus on your smallest debt first. Then start putting extra money toward it knowing you’ll have the cushion you need should any emergencies arise.
Rinse and repeat
In targeting your smallest debt first, you work your way up the ladder until you reach your final big debt. Since the final debt will be the largest, it might seem daunting, but remember, it’s the only one left. There will be no more need to divide your funds between multiple debt payments because, thanks to this method, you’ve already eliminated them! Now, you can throw everything you have at the big one.
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- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
Other helpful resources to pay off debt
The more overwhelmed and frustrated you feel, the more appealing rage quitting may seem. But you can still avoid it. Consider using other debt repayment methods like gamified motivation boosters, extra income strategies, and debt relief to help you stay motivated and get out of debt.
Gamified motivational boosters
One of the key reasons most people rage quit a game is because it’s no longer fun. The debt snowball method isn’t a game, of course, but if you could make it one and make it fun, your odds of sticking with it are that much higher. Fortunately, a few mobile apps are designed to do just that. Some common ones are:
The Habitica app, in particular, doesn’t just turn debt repayment into a game — it helps you create healthy habits that get you out of debt and keep you out of debt. Available for both iOS and Android, the app can be customized to suit your unique financial situation and lifestyle. Even better, it’s completely free to use.
Within the app, depending on your choices, you’ll end up with a series of tasks, habits, and to-dos. Performing “good” habits will grant you in-game virtual rewards like gold, mana, and ever-tantalizing experience points. In turn, performing “bad” habits will earn you in-game penalties and slow your progress. Thanks to its gamer interface, some might find the app to be too complex, making this an app best suited for those who enjoy games in the first place. Currently, the app enjoys a 4-star rating on the Apple App store and a 4.3-star rating on Google Play.
Extra income strategies
One problem with any debt reduction method is that you may need at least a little extra cash to keep up with your chosen repayment strategy. Fortunately, you can employ a few side hustle strategies to help you get that extra income. Some of the most common side hustles are:
- Driving for Uber or Lyft
- Delivering for Uber Eats
- Searching for jobs on Fiverr or Mechanical Turk
- Selling various items on Craigslist
- Selling custom-made items on Etsy, Zazzle, or Redbubble
- Saving with cash back apps and online coupon codes
In particular, there are a variety of cashback apps and some browser extensions that will locate working online coupon codes for you, such as Ibotta, Honey, and Capital One Shopping.
Debt relief
The problem with the snowball method is debt that keeps accruing interest while you focus on paying off your smallest balances. This means you might need a debt relief program for those higher interest rates like credit card debt or a personal loan. Debt relief comes in many forms, but as a whole, it can help you reorganize your debt so your lenders can receive some sort of full or partial debt repayment.
A variety of debt relief options exist:
In particular, balance transfers and debt consolidation loans work well for people who don’t want to continue accruing interest on high-interest debts while they tackle smaller debts. A balance transfer allows you to move high-interest debt (like a credit card) to a different card or loan with a lower interest rate. Balance transfer cards often start with 0% APR (for a limited time).
Similarly, a debt consolidation loan is when you consolidate all your debts into one larger loan with one universal interest rate. You would accomplish this by taking out a personal loan, combining all your debts into that one loan, and agreeing to pay it off instead of your original debts.
Before you forge ahead with debt relief, remember that these programs can sometimes worsen matters. For example, filing for bankruptcy can hurt your credit score. Also, completing whatever program you enter is important, so you don’t accrue even more debt.
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- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
Costs and fees
One of the biggest downsides of the debt snowball method is the cost. You'll most likely wind up spending more money than you would have if you followed the debt avalanche method. It will also take you longer to become completely debt-free. This is because the debt snowball method ignores interest rates and focuses only on your smallest balance.
Using two loans from my above example, let’s explore the cost difference between the debt avalanche and the debt snowball method:
- $8,000 home improvement loan with a 5.50% interest rate
- $10,000 credit card balance with a 15% interest rate
Let’s assume your regular monthly payment for your home improvement loan is $114. If you can put an extra $650 toward that debt each month for a total payment of $764, your home improvement debt payoff date would be one year from now, and you’d pay a total of $197.11 in interest on that one debt.
But during the same time, your credit card balance would continue to accrue interest. If you only pay your minimum payment of $225 on your credit card debt while you tackle your home improvement loan, you will pay $1,611.06 in interest for your credit card debt alone. That’s $1,808.17 total interest for those two loans if you use the debt snowball method.
By contrast, if you follow the debt avalanche method, you would first put those $650 of extra funds toward your credit card balance and pay that off in one year. You will spend only $859.16 in interest on your credit card debt during that year and $377.51 in interest on your home improvement loan. That’s $1,236.67total interest for those two loans if you use the debt avalanche method.
If you use the debt snowball method and tackle your smallest balance first instead of the higher 15% interest rate, you’ll spend an extra $571.50 in interest — just between those two loans — over one year.
Pros and cons
Pros
- The debt snowball provides short-term victories that help people stay inspired and keep trying to pay off debt.
- It’s easy to start and do.
- You don’t need to calculate interest rates when figuring out what to pay first.
Cons
- You will pay way more in interest fees, making this method more expensive long term.
- Despite the short-term victories, it can still take longer to become debt-free, thanks to those interest fees.
- It doesn’t help you focus on building a budget as the debt avalanche method does.
Relieve $25k+ in Credit Card Debt or Personal Loan Debt With TurboDebt
- Relieve $25k+ in credit card debt or personal loan debt with this special relief program.
- TurboDebt has a Trustpilot rating of 5/5 based on 1288 reviews
- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
FAQs
Why choose the debt snowball method?
This method provides quick wins by paying off smaller debts first, which can boost motivation and keep you committed to the debt repayment process.
Are there any drawbacks to the debt snowball method?
The main drawback is that it may cost more in interest over time compared to methods that prioritize high-interest debt, such as the debt avalanche method.
Can I use the debt snowball method with other strategies?
Yes, you can combine the debt snowball method with other strategies, such as creating an emergency fund or using balance transfers to lower interest rates.
What if I have a large amount of high-interest debt?
While the debt snowball method focuses on balances rather than interest rates, it can still be effective if you need the psychological boost of quick wins. If high-interest debt is a major concern, consider combining elements of the debt avalanche method, which targets high-interest debt first.
Is the debt snowball method right for everyone?
The debt snowball method is best for those who need motivation and quick wins to stay committed to debt repayment. If minimizing interest payments is more important to you, the debt avalanche method might be a better fit.
The bottom line
If you see a mountain of debt, get overwhelmed, and want to quit, the debt snowball method is your solution. With it, you can start winning those short-term victories to fuel your inspiration and keep you going. You’ll find many other resources, too, designed to help you embark on your debt-free journey. All it takes is that first tiny debt to get you started.
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Writer
A veteran wordsmith and research nerd, Brittany Wren spent a decade working in higher education where she helped people overcome challenges to chart a path forward. These days, she writes about personal finance, careers, parenting and education. Her content has been published by a wide variety of brands including T-Mobile, Intuit, LifeLock, Reliant Fund Administration and CURO Financial Technologies Corp.
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