Debt Snowball Method: How It Works

What Is the Debt Snowball Method?

The snowball method is a strategy for paying off multiple debts by paying off the smallest debt first. It’s simple to follow and can be highly effective if you have several debts to repay. The credit card snowball effect refers to the fact that once you have paid off the smallest debt, you then “snowball” the payment into your next smallest debt, and you continue until you’ve paid them all off.

How Does the Debt Snowball Method Work?

The debt snowball method works by focusing on one debt at a time while only making the minimum payments on all other debts. That way, you completely eliminate the smallest debt and reduce your total number of debts. The idea is that you will build momentum and enjoy the psychological benefits of making small wins. These keep you motivated to continue paying off your remaining debts.

If you want to know how to snowball debt, read on for a detailed step-by-step look at how to implement it:

Step 1: List Your Debts

Start by simply listing all of your debts. This may include credit card debts, personal loans, and other obligations. You can use a spreadsheet to make it easier, but you can write them down on paper if you prefer.

You then want to order your debts from the smallest to the largest. Don’t worry about the different interest rates; they don’t apply to this method.

You might end up with something like the following:

• Credit Card: $400
• Medical Bill: $1,600
• Personal Loan: $3,300
• Car Loan: $10,000

Step 2: Make the Minimum Payments

While you will prioritize the smallest debt (the credit card debt in the example above), you must still keep up with all of your other debts by making the minimum payments.

This will ensure you keep all your accounts in good standing and avoid having to pay late fees and other penalties, so you don’t have any other things to distract you from paying off the smallest debt.

Step 3: Pay Extra Toward the Smallest Debt

Pay as much as you can afford of the smallest debt. Allocate everything you can by trying to save money on other areas of your life like treats and meals out. You’ll find that even allocating an extra $50 or $100 to pay your debts can make a huge difference.

Step 4: Roll Payments Forward

Keep going every month until you have paid off the smallest debt. Once this debt is eliminated, focus exclusively on the next smallest debt on your list. Roll all the payments you were making on the smallest debt into this one, on top of the minimum payment you were already paying.

Step 5: Repeat Until Debt-Free

Continue the process until you have paid off the next debt, then move on to the next. Again, all the money you were using to pay off that debt can now go towards the next smallest debt, so you can increase the amount you pay back each month.

This is the “snowball” effect, which accelerates the process over time and builds momentum. Each time you clear a debt, you’ll have more available funds to tackle the next one.

Why Does the Debt Snowball Method Work?

The debt snowball method works by paying off smaller debts first creates psychological momentum, building confidence, and boosting your motivation to keep going.

1. Quick Wins Build Confidence

When you pay off a small debt early on, this gives you a boost and a genuine sense of accomplishment.

Your total number of debts goes down, giving you an early win, which can encourage you to keep going. You could even cross your debt off a list for a visible representation of your achievement.

2. Simplifies Decision-Making

Decision-making is made a lot easier with this technique because there is no complexity involved. You can simply focus on one task at a time, instead of juggling multiple priorities.

Concentrating your efforts on a single target makes the repayment process feel more manageable.

3. Reinforces Positive Habits

Following the snowball debt method gets you into positive habits, helping you to develop discipline.

This doesn’t only refer to your debt, but also your budgeting and your ability to prioritize financial goals, which will help you in the long term.

Pros	Cons
Motivational Momentum – Small wins build up early on, helping you maintain focus and determination.	Higher Interest Costs – Ignoring interest rates may result in paying more over time.
Simple to Implement – The straightforward approach is easy to follow.	Not Ideal for High-Interest Debts – Large debts with high interest rates may make this strategy unsuitable.
Reduces Overwhelm – Breaking debt into smaller goals makes repayment less intimidating.	Consistent Effort Needed – Success depends on maintaining discipline and avoiding new debt.

Table: Pros and cons of the debt snowball method

Debt Snowball in Action

Let’s take a look at a practical example of the debt snowball method in action:

Case Study: Sarah’s Debt Journey

Sarah has decided to use the debt snowball method to pay off her three debts:

• Debt 1: Credit Card – $850 (minimum payment: $25)
• Debt 2: Medical Bill – $1,800 (minimum payment: $50)
• Debt 3: Student Loan – $10,000 (minimum payment: $200)

Sarah creates a budget and works out that she has a total of $600 to allocate toward her debt payments each month, including the minimum payments.

Over the following months, she uses the snowball method in the following way:

Months 1–3:

Sarah pays $250 each month between her medical bill and student loan minimum payments.

She then uses the remaining $350 she can afford to pay off her credit card debt.

In the third month, she pays off her credit card debt entirely.

Months 4–8:

Now that her credit card debt has been cleared, Sarah uses the $350 she was using to pay off her credit card to pay off her medical bill.

In addition to the $50 minimum payment she has already been making, this means she can now pay off $400 each month of this debt.

By doing this, it takes her about five months to pay off her medical bill.

Months 9–23

Sarah can now add the entire $400 she was using to pay off her medical bill onto the $200 minimum payment she has been paying for her student loan, so she can now pay off $600 each month of this larger debt.

She has just over $8,000 to pay off now (because she has been making the minimum payments over the last nine months), with the exact amount depending on the interest she is being charged.

After about 14 months of paying $600 per month, she has paid off all her debts.

Timeframe	Debt Being Paid	Monthly Payment	Debt Status
Months 1–3	Credit Card ($850)	$375	Paid Off (Month 3)
Months 4–8	Medical Bill ($1,800)	$400	Paid Off (Month 8)
Months 9–23	Student Loan ($10,000)	$600	Paid Off (Month 23)

Table: Timeframe of Sarah's Debt Journey

Choosing the Right Debt Repayment Strategy

While the debt snowball method can be effective for many people, it is only one of the strategies available.

There are several others you may want to consider, including the debt avalanche method and debt consolidation. Each has its pros and cons, and the method you choose will depend on your financial goals and situation.

Debt Avalanche

The debt avalanche method is also used to pay off multiple debts. However, rather than tackling the smallest debt first, you focus on prioritizing the debts with the highest interest rates.

The debt avalanche method is, therefore, more cost-efficient than the snowball method. It can be a sensible option if you have a large debt with a high interest rate. In this case, the interest may be building up quickly, and you want to pay it off as soon as possible while your debts with lower interest rates are not growing as quickly.

However, you don’t get the same motivational benefits as you do with the snowball method. You miss those quick wins because you may have the same number of debts for longer, and it may seem like you are not making as much progress.

Debt Consolidation

A debt consolidation loan (link) is where you group all your debts together into one debt with the same interest rate and one monthly payment. Combining multiple debts into one loan, ideally with a lower interest rate, makes paying your debts simpler because you only have one payment to think about. The overall costs are also reduced because of the lower interest rate.

It may not always be possible to get a debt consolidation loan, and whether you can get a low-interest loan also depends on your credit score. However, it is an option to consider.

Negotiate Lower Interest Rates

While not a separate debt repayment strategy, negotiating lower interest rates could be something you can do alongside the debt snowball method. It involves negotiating with your creditors and explaining your situation, perhaps with assistance from a credit counselor. Then as you follow the debt snowball method, you reduce your overall payments at the same time.