Image
What is the Debt Snowball Method?
Debt can feel overwhelming, especially when it stands between you and your financial goals. If that sounds familiar, you’re not alone — more than 75% of Americans carry some form of debt.
The good news? If you’re determined to take control and get out of debt, the debt snowball method could be the strategy you’ve been looking for.
How does the debt snowball method work?
The debt snowball method is a practice popularized by financial guru Dave Ramsey. Using this method, you pay off your debts one at a time, starting with the smallest balance. The goal is to build momentum by seeing your debts disappear, one at a time.
1. Make a list of your current debts
The first step of the debt snowball method is to create a list of all your debts, including:
- Student loans
- Credit card debt
- Personal loans
- Medical bills
- Auto loans
- Home equity loans
- Mortgages
You should also list the amount you owe next to each debt. It may be worth creating a spreadsheet or putting your debts into a Google Doc so that you can keep a running tally of them.
2. Pay off the smallest debt first
Next, identify the smallest balance and make a goal to pay it off as quickly as possible. You may want to determine how much disposable income you have that you can put toward your debts as a whole. Base this total on the minimum monthly payments for each of your debts, plus any extra income you want to apply toward that smallest debt.
3. Continue making minimum payments on other debts
As you’re putting extra money towards your smallest debt, it’s important that you don’t forget about the rest of your debt. You should continue making the minimum monthly payments on them so that you don’t default.
Defaulting on debt payments can add extra fees and interest to them, making them even harder to repay.
Let’s look at an example of the debt snowball method in action:
| Type of Debt | Total Amount | Minimum Monthly Payment |
| Credit card | $2,000 | $200 |
| Student loan | $50,000 | $350 |
| Auto loan | $25,000 | $500 |
| Medical debt | $5,000 | $300 |
You know your total monthly minimum payment is $1,350 — but let’s say you have an extra $400 this month and you want to use it to pay down your debt. With the debt snowball method, you’d make a $400 payment on the credit card because it’s the smallest debt.
4. Proceed to the next smallest debt
Once you’ve paid off the smallest debt — in this case, the credit card — move to the next smallest: the medical debt.
Take the $200 minimum monthly payment you were paying on the credit card, plus any extra, and put it toward the medical bills.
5. Repeat the process until you’re debt free
Rinse and repeat! The goal is to eliminate your debt before interest rates have time to accumulate and create a larger deficit.
The idea behind using the debt snowball method to pay off debt is that you’ll continually build momentum towards becoming debt free. This is because as you pay off one debt after another, you’ll have more money to apply to the next one in line.
The debt snowball method also helps boost your determination and morale at becoming debt free. As you pay off one debt after another, it motivates you to keep going until all your debts are eliminated.
➢RELATED: How to Use a Line of Credit to Pay Off Debt
Debt snowball pros and cons
As with most debt repayment methods, there are advantages and disadvantages of using the debt snowball method.
Pros
- Quicker wins can keep you motivated.
- As you pay off each debt, you’ll have more money to pay toward the next one.
- It’s an effective debt-repayment plan.
Cons
The main disadvantage of the debt snowball method is that it doesn’t consider interest rates. If your largest debt also has the highest interest rate, it will continue to grow as you pay off the smaller ones.
Is the debt snowball method right for me?
The debt snowball method is a tried-and-true way to become debt free. However, if you have high-interest-rate debts, you may want to consider the debt avalanche method instead.
➢Related: What Is the Debt Avalanche Method?
Pay off debt faster with the debt snowball method
If you’ve weighed the pros and cons and decided to use the debt snowball method, you’ve taken the first step to becoming debt free! Now, it’s time to put your plan into action, start paying off those debts, and get on the road to financial freedom.
Notice: Information provided in this article is for informational purposes only. Consult your attorney or financial advisor about your financial circumstances.
About the author
Jalin Coblentz has contributed to Advance America since 2023. His experiences as a parent, full-time traveler, and skilled tradesman give him fresh insight into every personal finance topic he explores.
