If you want to pay off several debts, a system front-loaded with rewards can help keep you on track.
That’s the premise of the “debt snowball” method of repayment. You pay off your smallest obligations first, then roll the amount you used to pay those first debts into paying off your bigger ones — like rolling a snowball down a hill.
Small victories upfront — the satisfaction of seeing debts eliminated one by one — keep you engaged. It’s very different from the “debt avalanche” strategy, which prioritizes high-interest debt to save money but may take longer to get the first debt wiped out.
Debt snowball calculator
Use the debt calculator to see how this debt payoff strategy could work for you.
Enter information on your debts (excluding your mortgage), including interest rates and minimum payments.
Next, make a budget to see how much extra money you can put toward debt each month beyond just the minimums. That’s the money you’ll use to eliminate debt, and you can see how it can accelerate your plan.
Toggle between snowball and avalanche plans to see the difference in interest cost and payoff time between the two paths.
Make a budget to see how much extra money you can put toward your debt monthly.
You might wonder whether you can ever pay off your debt, even with a debt snowball plan to keep you focused. If your unsecured consumer debts — such as credit cards and personal loans — would take more than five years to pay, consider your options for debt relief.
While both the snowball and avalanche methods involve money you actively budget to pay down debt, you can supplement either with “debt snowflakes” — small daily savings and “found” money that you pour into payoff plan to hasten your progress.
Using the debt snowball strategy
First, be sure that you’ve budgeted enough to cover the minimum monthly payment for every debt. Now, arrange the debts by balance, from smallest to largest. Disregard the interest rate on each.
Every month, put the extra money you budgeted for getting rid of debt toward your smallest debt — even if you are paying more interest on a different one.
Every month, put the extra money you budgeted for getting rid of debt toward your smallest debt — even if you are paying more interest on a different one. Once the smallest debt is repaid, take the entire amount you were paying toward it (monthly minimum plus your extra money) and target the next-smallest debt. Keep knocking off debts and then diverting all the freed-up money toward the next debt in line.
Here’s how it could look in real life: If you have a hospital bill for $1,200 that the hospital is allowing you to pay interest-free, and two credit card bills for $5,000 (at 22.9% interest) and $3,000 (at 15.9%), you’d pay the hospital bill first. That’s right — you’d pay the interest-free loan before you paid those that accrue interest.
This can make numbers people crazy, because it usually saves time and money to pay highest-interest debts first. The debt avalanche method is a better fit for them. But if you need to front-load your payoff plan with early victories in order to stick with it, snowball is for you.
If you choose the snowball strategy and your high-interest debts are also the largest, don’t ignore opportunities to find lower rates, especially if your credit score is climbing. You may be able to transfer a credit card balance to a lower-rate card or find a debt consolidation loan.
Is a debt snowball for you?
Using the debt calculator above will let you compare the debt avalanche and debt snowball methods for your particular set of debts.
The avalanche method might be faster or cheaper, but know yourself: A plan you abandon — even if it is objectively superior — is a failure. That’s why a less efficient debt snowball may be a good choice for many even if it costs a bit more over time.
If a debt snowball offers the kind of reinforcement that will keep you motivated, it’s worth the premium to get your finances on track.
A 2012 Northwestern University study of nearly 6,000 debt settlement clients found that the fraction of debt accounts paid off was a better predictor of eventual success than was the dollar amount. Achieving subgoals can help you stick with your overall plan. If a debt snowball offers the kind of reinforcement that will keep you motivated, it’s worth the premium to get your finances on track.
Updated Feb. 7, 2018.