What Is the Debt Snowball Strategy?

Definition & Examples of the Debt Snowball

Woman reviewing debt paperwork at a laptop on a coffee table
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The debt snowball strategy helps you pay off your debts by tackling the smallest balances first and building momentum toward the larger ones. Knocking out smaller debts helps you stay motivated to stick with your plan and gradually work toward becoming debt-free.

If you feel overwhelmed by debt, a debt snowball strategy can help you regain a sense of control while paying off credit cards and loans. Other strategies, such as the debt avalanche, can result in lower interest costs, but the debt snowball method works well for motivating some people. Learn whether this method is a good choice for you.

What Is the Debt Snowball Strategy?

Just as the name implies, the debt snowball method works by building a snowball-like momentum as you gradually pay off debts. To do this, you pay off your smallest debt first and move on to the next-smallest debt, then the next-smallest, and so on. During the process, you continue making the required minimum payments on all of your loans, putting any extra money each month toward your targeted debt. Dave Ramsey popularized this method, and many people have used it to successfully pay off their debts.

How the Debt Snowball Method Works

Setting up the debt snowball strategy is simple and involves just a few steps.

  1. Get organized: Make a list of all of your debts. Order them from the smallest balance at the top of the list to the largest at the bottom. As you build your list, ignore the interest rates, monthly payment amounts, and other loan features. Focus only on the balance.
  2. Pay the minimums: If you don’t pay the minimum required on all of your loans and credit cards, you may have to pay fees and penalties, and it may damage your credit score.
  3. Pay extra on your smallest balance: Each month, put any extra money available toward the credit card or loan at the top of your list. Your goal is to aggressively pay off that smallest balance first.
  4. Build on your success: After paying off your smallest balance, cross it off the list and move on to the next-smallest balance. Take everything you were paying toward the smallest loan and apply that to the next one, on top of the minimum payment you were already making. As you finish paying each debt, your total payment toward the next one will grow larger and larger.

If you have an iPhone, iPad, or another iOS device, there are apps to help you eliminate your debt more quickly via the debt snowball method.

The Debt Snowball in Action

Assume you have several loans outstanding. Your monthly budget shows that you have an additional $100 available each month for extra loan payments. Where should you put that money?

To answer that, first list each loan or credit card debt from the smallest loan balance to the largest.

Debt Snowball Example
Type Balance Rate Min. Payment
Personal loan $2,000 7% $39.60
Private student loan $13,000 5% $183.74
Credit card $16,000 17% $480.00
Auto loan $21,559 4.75% $404.38

With the debt snowball, your extra $100 per month goes to your personal loan first. As a result, you pay $139.60 (the required $39.60 plus the additional $100) to that lender each month, while still paying the minimum toward your other three loans.

After you pay off each loan, that loan’s payment becomes available for additional debt payments. 

  1. After paying off your personal loan, you now have $139.60 extra for the next loan (because you don’t have minimum payments to make to your personal loan lender anymore). 
  2. You can send extra money each month to your student loan servicer. The payment will be the required $183.74 plus $139.60, for a total of $323.34.
  3. After paying off your student loan, you have an additional $323.34 available each month for paying off your credit card.
  4. The process continues to build momentum until you finally wipe out all of your debts.

See the example above and create your own repayment plan in our Debt Snowball Calculator.

Debt Snowball vs. Debt Avalanche

The debt snowball differs from another popular debt repayment strategy—the debt avalanche. The avalanche method prioritizes debts with the highest interest rate (instead of the smallest loan balance). It lowers your total interest costs and will make you debt-free faster, but may not give you those initial small wins to stay motivated.

Using the debt avalanche, it may take you a while to clear a big, high-interest debt before you get to lower-interest balances. For some people, staying motivated requires positive reinforcement soon after implementing the plan. The debt snowball strategy delivers that positive reinforcement by knocking out your smallest loans relatively quickly.

Should I Use the Debt Snowball Method?

The debt snowball is an excellent debt elimination strategy. If you find positive reinforcement in small victories and don't have a lot of high-interest debt, it could work for you. Using the snowball method has helped many people stay focused and committed to finishing their debt repayment plan.

The snowball method isn’t right for everyone, though. In some cases, it might not make sense to accelerate your payments on certain debts. For example, if you’re pursuing Public Service Loan Forgiveness for federal student loans, the Department of Education might allow you to stop paying after 120 qualifying payments. If successful, the remainder of your debt will be forgiven, so there isn't much benefit to paying extra. Instead of paying extra on those loans, it may be best to pay as little as possible under income-driven repayment and put extra money toward other high-interest-rate debts. 

In some cases, debt forgiveness can cause tax consequences. Federal student loans have unique features, so evaluate the pros and cons of accelerating those payments.

If you have some particularly high balances on high-interest loans, then it might make more sense to focus on paying those down first, since the long-term cost could be significant.

Whichever strategy you choose, it's important to find the one that you feel you'll be able to stick to all the way through. The avalanche won't save you money if you end up stopping halfway.

Key Takeaways

  • The debt snowball strategy helps you pay off debt by focusing on your smallest balance before moving in order to the larger ones.
  • You'll always pay minimums on all debts, but put any extra money toward your smallest debt first.
  • It won't save you as much in interest as the debt avalanche method, but it can help you stay motivated.

Article Sources

  1. Equifax. "How Might My Actions Affect Credit Scores?" Accessed July 31, 2020.