Takeaways
- The debt snowball method advocates paying off the smallest debt balances first.
- Ignore high balance or interest rate debt and concentrate on small balances.
- Two main debt repayment strategies are the snowball and avalanche methods.
- Research shows the debt snowball method is the best way to pay off your total debt.
- Paying off debt frees up cash flow to save for a slush fund, invest in stocks, or save for retirement.
Feeling overwhelmed by debt? You are not alone. A recent survey found that over 77 percent of Americans feel anxious about their financial situation.[1] Credit card debt and student loans can anchor your purchasing power and harm your mental well-being. Do not worry; you have come to the right place if you want to get out of debt. According to research studies, the best way to do that is with the debt snowball method.[2]
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What Is the Debt Snowball Method?
The debt snowball method is a strategy for repaying any debt. The debt snowball method advocates for listing all your debts in ascending order and paying off your smallest balance first, regardless of interest rates (more on that below). After paying off your smallest balance first, you begin to work up the ladder until you have paid off all your debts.
You can use the debt snowball method to pay off:
Much like the visual of creating a snowball and rolling it downhill, paying off smaller debt balances acts as momentum to your goal of becoming debt-free. As the snowball rolls downhill, it gets bigger and bigger. As you begin to tackle larger and larger debt balances, inertia will help you pay off all your debt once and for all.
To succeed at the debt snowball method, becoming debt-free must be a significant component of your financial goals. Let’s look at how to implement the debt snowball method tactically.
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What About Interest Rates?
One of the fundamental principles of the debt snowball method is that interest rates on your debt are completely ignored. The rationale for ignoring interest rates is that by paying off your smallest balance first, you eliminate a debt (forever) and achieve a huge financial goal.
Phycologists argue that “small wins” of debt repayment build financial and psychological momentum. If you pay off a credit card in full, you know you can pay off credit card debt. It’s as simple as that. The hard part is paying off high levels of debt.
Read More: How to Pay off Debt Using the Avalanche Method
The counterargument is that you should focus on paying off debt with the highest interest rate first because it is the most expensive debt. This strategy is called the avalanche debt repayment method.
How The Debt Snowball Method Works
The debt snowball method uses financial psychology to help reduce your debts quickly. In this debt reduction strategy, you pay off your debts in ascending order, or from smallest to largest. The point of starting with the smallest balances first is to usher in a sense of accomplishment that will carry you to pay the next debt in full.
Create A List of Debts
The first step in the process is to generate a list of all your debts. Your list includes credit cards (yes, all of them), student loans, car loans, boat loans, and any other loans you may have. Next, you create a spreadsheet of their current balances and minimum payments.
Sort Them in Ascending Order
With your list in hand, you are going to order all your current debts by their balances beginning with the lowest current balance first. Next on the list will be your second-largest balance. You will continue this process until all your debts are listed.
Below is an illustrative example of the debt snowball method table in ascending order:
| Debt Description | Current Balance | Minimum Payment | Interest Rate |
|---|---|---|---|
| Credit Card #1 | $300 | $11 | 15.00% |
| Credit Card #2 | $1,400 | $20 | 24.00% |
| Credit Card #3 | $2,000 | $33 | 23.00% |
| Student Loan #1 | $10,000 | $50 | 7.25% |
| Student Loan #2 | $15,000 | $70 | 8.00% |
| Car Note | $40,000 | $560 | 7.00% |
Above is an illustrative example. APR is not included in the minimum payment calculation.
In the example above, you would start with paying off Credit Card #1 and progress down the table until all your debt is paid off, including your car note. Once you have paid off your debt, the minimum balance payment is rolled into your payment on the next debt, generating the real momentum behind the debt snowball method.
Read Also: What Is Annual Percentage Rate (APR)?
Budget To Win
To succeed at the debt snowball method, you must choose a budgeting strategy that helps you achieve your goals. If you don’t have a budget, you need to create one. Your budget will analyze your income and expenses.
Are you spending more than you make? If you have a lot of credit card debt or student loans, it can be very easy to fall into the cycle of overspending. You need to stymie your cash outflow each month and focus on utilizing your income to pay off your debts. This will free up your income to help you achieve other financial goals.
Here are some budgeting strategies that can be used to help you become debt-free:
- Cash Envelope Budget: Advocates paying all your expenses in cash. At the beginning of the month, you stuff cash into envelopes assigned to different expenses. If you need to regain control of your finances, you will touch every dollar you make with this approach.
- Zero-Based Budget: This strategy makes you assign a job for each dollar of your paycheck every month. There are zero dollars left unaccounted for, which allows you to allocate more toward debt repayment.
- 50/30/20 Budget: Specifically assigns 50% of your spending on essentials, 30% on personal items, and 20% on saving and investing. With this allocation, you can focus on cranking up how much you spend on paying off your debts over time.
Other budgeting systems work well too. You need to choose a budgeting system that holds you accountable.
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Once you are debt free, you can advance on to building an emergency fund, slush fund, and investing. These are wealth-building opportunities that can accelerate your path to getting rich.
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Celebrate Your Wins
Depending on your starting point, the road to becoming debt free can be long. Whether you only have $1,000 to pay off or $40,000, it is important to celebrate your wins along the way.
To help you remain motivated throughout your debt-free journey, gamify the debt repayment process and turn a bad situation into a fun game. Give yourself rewards along the way. Try to keep those rewards inexpensive and positive: download a new audiobook, go out to eat, or meet up with friends.
Smart Summary
Listen, the debt snowball method works. Thousands of people have used this debt repayment method to eradicate their debt for good. By developing a budget, tidying up your debts, and making the mental commitment to pay off your debts completely, you too can become debt free. You will feel a surge in success and momentum as you pay off one credit card bill or student loan at a time. Trust the process and let the debt snowball method help you become debt free. That’s a smart money move.
Frequently Asked Questions
Yes. With the debt snowball method, you should sort your debts starting with the smallest balance first. Other debt repayment methods, like the avalanche method, focus on paying off your highest interest rates first.
Research studies have shown that if your goal is to pay off all your debt, the debt snowball method is the most effective. Of course, this doesn’t mean that it works for everyone. Methods, like the avalanche method, take a different approach.
Unless you are going to pay cash for everything, consumer debt is going to be a part of your life. Maintaining a good credit score will decrease your borrowing costs and give you access to the best credit cards. Good debt is debt that helps you build wealth. For example, your mortgage payment helps you build home equity.
Debt consolidation is always an option, but it doesn’t always make the best financial sense. If you haven’t diligently tried the debt snowball method or avalanche method, you should research the benefits of debt consolidation.
(1) Capital One. Big-Thinking Leads to the Right Money Mindsset. Last Accessed March 6, 2025.
(2) Northwestern Kellogg. The ‘snowball approach’ to debt. Last Accessed March 6, 2025.
