Debt Snowball

Debt snowball summary:

The debt snowball method is an effective strategy for paying off debt.
Motivation gets a boost when you pay off your smallest debts first.
An alternative to the debt snowball method is the debt avalanche method.

Debt Snowball Definition and Meaning

The debt snowball method is a debt payment strategy that suggests you pay debts in order of smallest to largest. The point is to build momentum, and therefore, stay motivated. Like a snowball rolling down a hill, small starts can lead to big results.

Experts often compare the debt snowball method to the debt avalanche method. In a debt avalanche, you pay down the most expensive debts first.

Key concept: Paying down debts from smallest to largest.

Real-life Examples of the Debt Snowball

The media has reported instances of regular people who successfully snowball debt. In 2018, NBC News reported on the Baldwins, a couple who used the debt snowball method plus financial minimalism to pay down $130,000 of debt in four years. They listed all debts, made minimum payments on all but one, and focused on sending as much extra money as possible to the smallest debt first.

In 2018, CNBC reported on Jennifer, a blogger who used the debt snowball method to pay down $36,000 in debt. She owed $25,000 in student loans and $11,000 in credit card debt. Jennifer found the snowball debt approach was most effective for her and her family.

Debt Snowball Method: A Comprehensive Breakdown

The debt snowball method is a proven way of effectively paying down debt. You might be more likely to stick with your debt payoff plan if you get a quick win. The sooner you reach the feel-good moment of completely paying off a debt, the more excited you might feel about working toward the next one.

Key components of debt snowball

Following the steps below is key to snowballing debt payoff.

List your debts: List your debts by balance, from smallest to largest.
Make minimum payments: Pay the minimum payment on all debts.
Focus on the smallest debt: Use extra money to pay down the smallest balance.
Roll over payments: Once the smallest debt is paid off, take the money you were paying on that debt and add it to the minimum payment for the next smallest debt. If you keep doing this, the monthly payment on each debt should be bigger than the payments you were making on the previous debts. In other words, it snowballs.
Repeat the process: Continue this cycle, moving up the list, until all debts are cleared.

Debt snowball vs. debt avalanche method

Debt snowball method is often compared to the debt avalanche method, another strategy for paying down debt.

Think of it this way: The debt snowball method helps you stay motivated. Contrast this with the debt avalanche method, which assumes you’ll stay motivated.

Compare the two debt payoff strategies to understand the benefits each offers:

	Debt Snowball Method	Debt Avalanche Method
Order of Payment	Smallest balance first	Highest interest rate first
Motivation	High, because of quick wins	Lower, as larger debts with higher rates may take longer to pay off
Interest Cost	Potentially higher, as high-rate debts with larger balances may linger	Lower, as high-rate debts are tackled first
Suitable for	Motivation booster	Financial efficiency

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Debt Snowball FAQs

What is the fastest way to pay off credit card debt?

Two popular and speedy debt repayment approaches are debt snowball and debt avalanche.

With debt snowball, you prioritize your credit card repayment based on the smallest to highest debt balance owed. You contribute as much as you can every month on that balance, paying off the smallest initially, then targeting the next smallest, then the next smallest, etcetera.

With debt avalanche, you attempt to repay your debts with the highest interest rates first, as these are the most costly. Although it may take longer to pay off your initial debt, the debt avalanche method will eventually dig you out of debt faster and save the most money on interest payments.

What are the three biggest strategies for paying down debt?

Debt snowball: Paying off your debt in the order of their outstanding balances, starting from the smallest.
Debt avalanche: Paying off your debt in the order of their cost, starting with the highest interest rate.
Debt consolidation loan: Getting a new loan to pay off multiple smaller debts.

How is the debt avalanche method more cost-effective than the snowball method?

The avalanche method is more cost-effective than the snowball method because it gets rid of your most expensive debt first.

The snowball method prioritizes motivation, while the avalanche prioritizes savings.

Getting out of debt isn’t easy or quick. It takes commitment and a stick-to-it attitude. That’s why the snowball method may be more popular. It’s often the fastest way to get to your first debt payoff, which is a big cause for celebration.

If you play around with an online debt snowball vs. debt avalanche calculator, you’ll see that following the avalanche method could cut about a month off your debt payoff timeline. That may be more significant than it sounds. This one-month payment could be a big one, because at this point, you’re paying off your last debt with a payment that includes all the payments you were making against all of your debts.

But no debt payoff plan is effective if you can’t stick with it.

Only you can decide which DIY method is a better fit for you.