What Is the Debt Snowball Method?

While being in debt may not be fun, there is an interesting, and—dare we say somewhat entertaining—way to eliminate it. It’s called the debt snowball method, and like a real snowball, it picks up momentum over time, eventually rolling over and wiping out your debt.

Here’s how the snowball method works, and how to determine if it’s the right debt payoff method for you.

What Is the Debt Snowball Method?

The debt snowball method is a popular debt-reduction strategy in which you make all of your minimum debt payments, then prioritize sending all your extra money to the debt with the smallest balance. Once that's paid off, you roll over your money to the next-smallest balance, and so on.

With each debt you pay off, momentum grows, allowing you to dedicate more money to the next debt in line and speed up payoff. This method is popular for tackling unsecured debt, including credit cards, medical bills, and personal loans (though it could also work for secured debt, such as auto loans).  

With the snowball method, the focus isn’t on interest rates. Instead, balance size determines the order in which bills are paid off. There are many debt payoff methods, but three factors help make the debt snowball method so popular.

1. Simplicity: The debt snowball method is easy to understand and to follow.

2. Psychological boost: Watching debt disappear is psychologically satisfying, and may help you stick with the payment strategy.

3. Progress: With each debt paid, momentum picks up, accelerating progress.

Who might benefit from the snowball method?

The debt snowball method works best for people who can afford their current monthly minimum payments plus a bit extra they can put toward their priority balance each month. Any extra amount is all right as long as it's fairly consistent.

How the Debt Snowball Method Works

The beauty of the debt snowball method is its simplicity. It’s easy to set up, and when you make the payments, it truly can work. 

Here’s how it's done:

1. List your debts. Include the amount owed and the minimum payment for each debt.

2. Put the debts in order. Arrange your debts from smallest to largest balance.

3. Make minimum payments. Continue to make the minimum monthly payments on all your debts.  

4. Focus on the smallest debt. Put any extra money you can come up with (from extra income or budget cuts) toward the debt with the smallest balance. Let’s say the minimum payment on that account is $50, and you can make an additional $50 per month. Instead of paying $50 toward that debt, you pay $100 until it’s paid off.

5. Move on to the smallest remaining balance. Take the amount you were paying towards the debt you just paid off and apply it to the debt with the next-lowest balance. So, if you were paying $75 toward the paid-off debt each month, add $75 to the minimum payment for the next debt on the list.

6. Repeat. Continue this process, focusing on the next-lowest balance each time you've paid off a debt. As the amount you pay grows, you chip away at your debt at a faster rate.

Benefits of the Debt Snowball Method

The pros of the debt snowball method include:

• Speed: The snowball accelerates your debt payoff versus minimum payments alone, so you get out of debt more quickly.

• Savings: May help reduce how much you pay toward total interest versus minimum payments.

• Motivation: Each time you pay off another debt, you could become more motivated to keep going since you can see visible progress.

• Simplicity: It’s easy to implement this payoff method.

• Shifting focus: By focusing on one debt at a time, you could be less likely to stress over the entirety of your debt.

Snowball Method—Details to Keep in Mind, Drawbacks to Consider

As effective as the snowball method can be, it’s not perfect. Here are a couple of potential drawbacks:

• You may pay more in interest than necessary. It’s possible you could save more money by using the debt avalanche strategy. That method prioritizes debts by the interest rate instead of the balance size. It could take longer to pay off your first debt, but you'll likely save more money on interest overall.

• The snowball requires discipline. As you stick with the payoff plan, you should also avoid taking on new debt. But there’s no one forcing you to stay on track—except you. So it could be tempting to take a break when finances get tight or your motivation wanes.

• You need to have extra money in the budget. You need to make all of your minimum debt payments, then have money left over to focus on your debts. If you're struggling to make your minimum payments already, you may need to consider other debt relief strategies.

Is the Debt Snowball Method Right for You?

If you’re excited by the idea of systematically knocking out debt, that’s a good sign. You know you’re a good candidate for the snowball method if:

• You’re motivated by quick wins.

• You have multiple small debts.

• You can make payments above the minimum.

There’s no wrong or right way to get out of debt; there’s only the way that works best for you. If you’re overwhelmed by the amount you owe, are struggling to make minimum payments, or prefer professional guidance, it may be good to seek another repayment strategy.

Other Ways to Get Rid of Debt

The important thing is to choose a payoff method you’re comfortable with and can see through until the end. If that means working with professionals who can walk you through the process, that’s a good way to go. Here are some of the most popular alternatives to the debt snowball method.

Debt avalanche 

The debt avalanche method works very much like the snowball method. You still make all of your minimum payments and put extra money toward one debt. The primary difference is that you tackle your debts from the highest interest rate to the lowest, instead of by balance size. This method is likely to help you save money on interest payments and like the snowball method, it helps you pay off your debts faster than just making minimum payments.

Debt consolidation 

Debt consolidation involves taking out a new loan to pay off multiple smaller debts. It works best when you can also get a lower interest rate than you're paying now. The benefits become simpler fiannces—only one monthly payment instead of multiple—and potentially lower monthly payments with less interest. To land a lower interest rate, you typically need at least a fair to good credit score.

Debt management plan 

A debt management plan (DMP) is a structured repayment strategy to help you manage and pay off unsecured debts. It begins with a credit counselor’s evaluation of your financial situation. If you qualify for a DMP, you and the counselor create a budget to manage monthly expenses while also setting aside money for debt repayment.

Your credit counselor may negotiate with your creditors to waive fees, reduce interest, or otherwise establish more affordable payment terms. Instead of making payments to different creditors, you make a single monthly payment to the credit counseling agency. The counseling agency then distributes the money to your creditors. A DMP typically lasts from three to five years.

Professional debt settlement 

If you're dealing with financial hardship and are overwhelmed by unsecured debt, you could be a candidate for debt settlement. This when you negotiate with your creditors to settle your debts for less than you owe. Creditors are often more likely to negotiate if it's clear you're struggling to pay your bills.

You can try debt settlement yourself or hire a debt settlement company to work on your behalf. Creditors may agree to accept a lump-sum payment for a reduced amount. Though you pay a fee for the service, a debt settlement company could take a lot of the stress out of negotiations.

Debt settlement can take from several months to a few years, depending on the amount of debt and whether your creditors will settle.

Taking the Next Step to Get Out of Debt

Many paths can lead to becoming debt-free, so choose the path that works best with your budget. If it all seems confusing, that’s okay. You can learn how Freedom Debt Relief works with a free debt evaluation. That could help you figure out the payoff method you can stick with while carrying on with your life.