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What Is the Debt Snowball Method?
Here’s How a Debt Snowball Gets Rolling
The Psychology Behind a Debt Snowball
Does a Debt Avalanche Make More Sense?
What Debt Repayment Method Works Best?
Debt Repayment Tips
You Don’t Have To Tackle Debt on Your Own
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If you're juggling multiple debts at once, it can be hard to figure out how to pay them all off.
One of the most popular strategies for managing debt is the debt snowball method, popularized by Dave Ramsey. It's simple and has helped a lot of people get out of debt. But does that mean it’s the smartest way to pay off what you owe?
What Is the Debt Snowball Method?
The debt snowball method is a strategy for repaying debts, starting with your smallest balance and working up to the largest. With this approach, you don’t worry about which debt has the highest interest rate. You just methodically work through debts in order of balance size.
If you follow this method, you'll make the minimum payment on every debt each month, then put any extra money you can find toward the smallest balance, on top of its minimum.
Once that balance is paid off, you take the amount of its previous minimum payment and apply it to the next-smallest debt. And, like with the first debt, you’ll put as much extra cash toward that balance as possible.
This method helps you build debt-elimination momentum, just like a snowball rolling downhill, picking up size and speed as it goes.
Here’s How a Debt Snowball Gets Rolling
Let’s say Natasha has four debts that she’s trying to pay off: three credit cards and a personal loan.
| Debt | Balance | Monthly Minimum Payment |
|---|---|---|
| Credit Card #1 | $500 | $50 |
| Credit Card #2 | $5,000 | $100 |
| Credit Card #3 | $6,000 | $60 |
| Personal Loan | $7,000 | $400 |
She decides to use the Debt Snowball Method. Each month, she makes the minimum payment for all of her debts ($610 total).
She uses any extra funds in her budget to put toward Credit Card #1, her smallest balance. A bonus at work, birthday money from her grandma, savings from couponing, she puts them all toward that debt, so she’s making more than the minimum payment.
After a few months, Natasha pays off the balance for Credit Card #1 and feels a sense of accomplishment that keeps her motivated to move on to Credit Card #2.
Now she rolls Credit Card #1's old $50 minimum payment into Credit Card #2's. If Card #2's minimum was $100, she's now paying $150 toward it each month, plus any extra cash she finds — the same approach she used with Card #1.
She repeats this with Credit Card #3, then her personal loan, building momentum with each payoff until all her debt is gone within a couple of years.
The Psychology Behind a Debt Snowball
It’s natural to think that paying off balances is just about numbers. But the math is only half of the equation. Money management — especially when it comes to debt — has an emotional side as well. That’s why this method works for so many people.
The debt snowball method is built entirely on positive momentum. Paying off a debt, even a small one, gives you a quick win, and that sense of progress can be the difference between sticking with a repayment plan and giving up halfway through.
Does a Debt Avalanche Make More Sense?
It’s worth mentioning that the debt snowball method probably won’t save you money in the long-term. Because you're ignoring interest rates, you might spend months paying only the minimum on a high-interest credit card while you’re focusing on a low-interest loan with a smaller balance. That credit card will keep accumulating interest in the background the whole time, meaning you’ll ultimately pay more money for those debts in the long run.
Some experts suggest using the debt avalanche method instead.
With the avalanche method, you’ll order your debts by interest rate (highest to lowest) instead of by balance. This method will help you pay less in interest over time because you’re knocking out the highest-interest debt first. The only catch is that it might take you longer to pay off an account if the lower interest rate carries a higher balance. But with the interest savings, it might be worth the wait.
What Debt Repayment Method Works Best?
The best method to use depends on your personality and financial habits.
If you’re someone who needs to build momentum to stay motivated, the snowball method might be your best bet. On the other hand, if you’re motivated by saving the most money possible, you might have better luck with the avalanche.
Some folks create their own hybrid version of the two, knocking out small debts first for quick wins and then switching to focus on the highest-rate debts.
Snowball, avalanche, or a combo approach, the best method is the one that you stick with. Consistent progress is what it’s all about.
Debt Repayment Tips
No matter which method you go for, there are a few ways to make your debt repayment easier.
- Automate your minimum debt payments so you don’t have to keep track of them each month.
- If possible, avoid taking on additional debt. Opening a new credit card or another personal loan can stall or reverse the progress you’ve made.
- Review your budget and eliminate unnecessary expenses.
You Don’t Have To Tackle Debt on Your Own
If your debts are piling up and you’re struggling to pay them back, you aren’t alone.
At Spero, we offer free financial counseling to all of our members. If you need help strategizing your debt repayment plan or just want to talk through your worries, we’re here to help.
Make an appointment to speak with one of our certified financial counselors.
This material is for educational purposes only and is not intended to provide specific advice or recommendations for any individual.
