Debt Snowball Method: How It Works, When to Use It
The debt snowball method of paying off debts from smallest to largest can help you rack up quick wins and keep going.
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Debt snowball: How it works in 5 steps
With the debt snowball method, you pay off your smallest debt first, then roll the amount that was going toward that bill into paying off your next-smallest one.
The amount you're paying on that first debt keeps growing — much like rolling a snowball down a hill.
You are still making payments on all of your debts. You're just putting extra money toward the account with the smallest balance. Here’s how to use the debt snowball method in five steps:
- Make a list of all of your debts by balance, from smallest to largest. Ignore interest rates.
- Pay the minimum monthly payment for every debt.
- Calculate how much extra money you can devote to reducing your debt. Each month, put that extra cash toward your smallest debt — even if you are paying more interest on a different one.
- Once the smallest debt is paid off, take the entire amount you were paying toward it (monthly minimum plus the additional cash you were paying) and target the next-smallest debt.
- Keep knocking off debts and then putting all the freed-up money toward the next debt in line.
Example
Let’s say you have:
- A $1,200 hospital bill with no interest.
- A $3,000 credit card balance at 15.9% interest.
- A $5,000 credit card balance at 22.9% interest.
Using the debt snowball method, you’d pay extra toward the $1,200 hospital bill first, even though the credit cards are charging more in interest. The goal is to get quick wins and build momentum.
When to use the debt snowball method
Consider the debt snowball method if small wins up front keep you motivated. The debt snowball provides the early satisfaction of seeing debts wiped out one by one.
Meanwhile, the debt avalanche strategy takes the opposite approach. It prioritizes paying off high-interest debt first. The debt avalanche might save you more over time, but it also might take longer to get the first debt paid off.
If you need to front-load your payoff journey with early victories in order to stick with it, snowball is for you.
If your unsecured consumer debts — such as credit cards and personal loans — would take more than five years to pay, consider exploring debt relief options.
Debt snowball pros and cons
As you’re thinking about whether this is the strategy for you, consider the advantages and disadvantages.
Pros
Creates early wins.
Easy to understand and track.
Works well for people who have trouble staying motivated.
Cons
You might pay more interest than with the debt avalanche.
Not ideal if you have big balances with high interest rates.
How to add 'debt snowflakes' to your debt snowball
“Debt snowflakes” are small daily savings. For example, if you cut one restaurant meal per week and put the money saved toward debt, that would be a snowflake. Every little bit counts.
Look for ways to free up more money in your budget to speed up your debt snowball efforts. You could start a side hustle to earn more money. You could also negotiate with service providers so you spend less on the internet, your cell phone, etc.
Don't ignore opportunities to get lower rates on larger, high-interest debts. Debt consolidation, which combines multiple debts into a single payment, usually at a lower interest rate, could be an option.
- You may be able to transfer a credit card balance to a lower-rate card, or one with a 0% introductory APR.
- You could also look into a debt consolidation loan.
» Compare the best balance transfer credit cards
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