What Is the Debt Snowball Strategy?

The Debt Snowball Strategy Explained

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. Paying off your smallest debts helps you stay motivated to stick with your plan, as you build momentum toward becoming debt-free.

This article explains how and why the debt snowball works, and details an example of the strategy in action. You’ll also learn the pros and cons, as well as steps to take if you’re struggling with burdensome debts.

What Is the Debt Snowball Strategy?

The debt snowball method works by building a snowball-like momentum as you gradually pay off debts. To do this, pay off the smallest debt first and move on to the next-smallest debt. Then, continue through the rest of your loans with the same approach. 

During the process, continue making the required minimum payments on all of your loans, putting any extra money each month toward the smallest loan balance. Dave Ramsey originally popularized this method, and since then, many people have used it to successfully pay off their debts.

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, like the debt avalanche, can minimize interest costs, but the debt snowball method works well when motivation is critical.

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. You can put that $100 to work and pay off debt by using the debt snowball strategy. 

 Start by listing each loan or credit card debt from the smallest loan balance to the largest.

Debt Snowball Example
Type Balance Rate Minimum 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 toward your personal loan first. As a result, you pay $139.60 (the required $39.60 plus the additional $100) to that lender each month. Continue paying the minimum on your other three loans.

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

  • 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). 
  • 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.
  • After paying off your student loan, you have an additional $323.34 available each month for paying off your credit card.
  • 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, also known as debt stacking, 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 it may not give you those quick wins to stay motivated.

In the example above, you would prioritize the credit card instead of the personal loan because of the credit card’s rate. But paying down that $16,000 balance could take a long time, and you risk becoming discouraged. A debt snowball provides a sense of accomplishment early in the process, and you may appreciate that positive reinforcement.

Should I Use the Debt Snowball Method?

The debt snowball is an excellent debt elimination strategy. If you enjoy positive reinforcement in small victories and don't have a lot of high-interest debt, it could be a good option for you. 

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. 

Whichever strategy you choose, it's important to find the one that you feel you'll be able to stick to until all your debts are paid. The avalanche, for example, won't save you money if you end up stopping halfway.

When you have loans with high interest rates, it might make sense to focus on those first. Lower-rate loans don’t put a significant drain on your finances, and you can pay those off later.

What to Do If You Need Help

While the debt snowball helps you eliminate debt when you have extra income, sometimes you need additional help. Several options are available.

Credit Counseling

Credit counseling agencies are nonprofit organizations that provide education and assistance with debt. You can discuss your situation with a professional, and if necessary, the agency can help you establish a debt management plan (DMP). When using a DMP, you may be able to lower your monthly payments and interest rates, making it easier to manage your loans.

Debt Settlement

Debt settlement is another option, and is considered a more extreme solution. Debt relief companies help individuals manage their outstanding debts by negotiation or consolidation of balances. The service will work out a payment plan, or even help individuals file for bankruptcy in exchange for a fee. Creditors need to agree to the deal, though, and lenders might not be willing to accept your offer. 

Debt settlement can also hurt your credit score, so it’s best to exhaust all of the alternatives before going down this road.

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.
  • If you need extra help managing your debt, visit with a nonprofit credit counseling agency (or explore debt settlement as a last resort).