There are many reasons to pay off debt and there are almost as many ways to successfully create a debt payoff plan. The debt snowball plan of paying off debts is a great system front-loaded with rewards and positive psychological wins that has helped millions of people pay off debt.
With the debt snowball you attack debt by tackling the smallest obligation first. You then roll that payment amount into tackling the next largest debt. You continue this process knocking off bigger and bigger debts with a larger payment amount, just like a snowball rolling down a hill.
Why the debt snowball works
The debt snowball is derided by many as the worst way to repay debt because it doesn’t take interest rates into account. This means for many people it is not the best mathematical choice. So why does the debt snowball method work so well for people paying off debt?
The debt snowball method works well because the small victories people achieve up front when paying off debt. For many people seeing those small debts paid off quickly helps keep them engaged and ready to tackle bigger challenges.
The debt snowball might not be the best way financially to pay off debt compared to a technique like the debt avalanche strategy, but it uses psychological strategies that work for many people.
How to set up a debt snowball
Setting up a debt snowball is actually very straightforward. There’s only 5 steps to setting up and completing a debt snowball.
Step 1: To start you will list all of your debts from smallest balance to largest balance regardless of interest rate.
Step 2: Make minimum payments on all your debts except the smallest debt balance.
Step 3: Pay as much as possible on your smallest debt balance until it is completely paid off.
Step 4: Take the minimum payment from the previous loan and all your extra income and apply it to the next largest debt balance.
Step 5: Repeat until each debt is paid in full.
There are many examples online of setting up a debt snowball to repay debts.
When we starting paying off debt together my husband and I set up our debt snowball as follows:
- Loan 1: $1,043.99
- Loan 2: $5,400.05
- Loan 3: $5,792.96
- Loan 4: $31,129.13
Total debt: $43,366.13
You can see how we worked through the debt snowball with our debt snowball playlist where we adding videos showing our progress working through the debt snowball.
The debt snowball method worked well for me when I paid off $22,000 in student loans and $5,000 in credit card debt in my early 20s so I knew that the method would work well for me again. While the interest rates of our newer debt snowball meant the lowest interest rate debt would be paid last, I knew the method was effective.
If you want to see how long it will take you to pay off your debt using the debt snowball method, you can use a debt snowball calculator is a great way to see how quickly a debt snowball can get you out of debt.
Using the debt snowball method
Using the debt snowball to pay off debt is very simple in practice and works well for many people.
The first step is to make sure you are covering the minimum monthly payments on all of your debts. You should not stop paying your debts unless you are unable to cover you basic living needs like rent or food.
After you’ve covered all the minimum payments on your debts, you work on attacking your debts in the order of the debt snowball list you’ve created. You will send all your extra money toward that first smallest debt.
Every single month you will put all your extra money budgeted for debt payoff toward your smallest debt. You do this even if you are paying more interest on a different one due to interest rate. Once you’ve paid off the smallest debt you then take that entire amount and send it to the next smallest debt.
Rinse and repeat by knocking off debts from your list and then sending all the freed up money toward the next debt in line.
In practice the debt snowball might look like this: you have a dental bill for $1,000 that you are paying interest-free, and two credit card bills for $5,000 (at 22.9% interest) and $1,500 (at 15.9%), and a student loan at $26,000 (at 6%). With the debt snowball you’d pay the dental bill first. Once you completed that loan you’d move on to the $1,500 credit card and then the second credit card and finally the student loan.
With the debt snowball you may end up paying off interest-free loans before you tackle the bigger interest debts.
If the debt snowball method makes you crazy because of the interest rates, you may want to consider the debt avalanche method or a debt consolidation loan.
How to make the debt snowball work for you
Once you’ve got your debt snowball set up you can set about the business of making the debt snowball even more effective.
First, make your budget and see how much extra money you have to put towards the debt each month above the minimum payments. That extra money is how you will eliminate the debt that you are tackling.
Next, find ways to free up even more money for your debt snowball. You can do this one of two ways: increasing income or decreasing expenses. You can decrease expenses by eliminating bills or living frugally or giving yourself less spending money each month. You can increase income by doing a side hustle or by increasing your income at your regular 9 to 5 job.
Your debt snowball will be most effective when you are able to find even more money to throw at the debt each month. The more money you put toward your debts, the more you will progress in the snowball and the faster it will go.
My favorite way to increase the effectiveness of a debt snowball is to use these spots of found money to make debt snowflake payments. The small daily savings and “found” money that you can add to the debt repayment in terms of debt snowflakes can truly add up and make a difference.
Is a debt snowball right for you?
When choosing your debt repayment method you have to select the right method for you, whether that is the debt snowball or the debt avalanche or another method.
Using a debt snowball calculator will let you compare the different options and decide which method is the best for paying off your debts.
It can be tempting to go with the debt avalanche plan for paying off debt but you have to think about more than just the numbers. You know yourself and how you handle money and what motivates you. The best debt payoff plan is the one that you will stick with. A debt payoff plan does you know good if it is mathematically the best choice but you abandon it. That’s why the less financially effective method of the debt snowball might be the best one for you – because it includes motivational wins that help you stick with it.
For me, I like breaking down larger goals into smaller ones. Having more frequent milestones and payments is motivating to me. (It’s also why I combine the Weekly Transfer Method with the Debt Snowball.)
Breaking down large goals into smaller subgoals can help you stick with an overall plan. This is especially helpful if you think it will take years to pay off all your debt.
If you think the debt snowball method will motivate you to pay off debt, then that is the method you should choose.
Mary is the founder of Pennies Not Perfection where she shares her journey to build wealth through online income. She quit her day job in 2021 after she paid off her debt and doubled her 9-5 salary.
Mary's favorite free financial tool is Personal Capital. She uses their free tools to track net worth and work toward to financial freedom.