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What Is A Debt Snowball And How Does Making One Help Me Get Out Of Debt?

7-Minute Read

It can happen fast. One day you’re enjoying a lavish shopping spree. Next, your credit card balance rears its ugly head and spoils your fun. We’ve all been there. And once you’ve been there, the question that likely weighs most heavily on you is, "How do I get out of there?"

The answer? Think snow...

What Is The Debt Snowball Method?

The idea behind a debt snowball is starting small and working your debt repayment plan up, from your smallest debt to the largest. This will allow you to enjoy some tangible, early wins when paying off your pile of debt.

The debt snowball method is built on the idea that debt isn’t an exclusively financial problem. Our feelings toward money often contribute to the problem. If our former spending made us feel good, we’re going to need to replace the pleasant feelings associated with our destructive behavior with a healthier, financially sound outlook. Regular celebrations and self-congratulations help strengthen the behavior we’re trying to reinforce.

In short, paying off your debt should feel as good as creating it once did.

How Do I Start My Debt Snowball?

Prepare yourself for success by organizing your debt.

Add It Up

The first thing you need to do is add up all your non-mortgage debts – including student and car loans. Next, calculate your debt-to-income ratio (DTI). If you’re unsure how to do this, we have a debt-to-income ratio calculator that can help you find your DTI. Understanding where you are will help keep you motivated as you tackle your debts.

Line It Up

Next, organize your debts from smallest to largest. Continue making the minimum monthly payment(s) on all but your smallest debt. When that’s paid, dedicate that money, in addition to the minimum monthly payment you’ve been making, toward paying off your now-smallest debt.

Set Your Sights

Your smallest debt is your target. Every spare dollar gets thrown at it until it’s gone. Celebrate – frugally but effectively – when you pay it off. Then, start on your new target – your now-smallest debt – throwing everything you threw at the now-paid debt, plus a little more when you can. Celebrate again when that debt is gone. Rinse and repeat!

How Do I Grow My Debt Snowball With Debt Snowflakes?

Once you get your debt snowball started, the best way to make it bigger is to pack in every debt snowflake that comes your way. In debt terms, that means committing to a rule that every dollar of found money – including raises, bonuses and extra funds earned from any side hustles – goes toward paying off that smallest debt.

When you find a $20 bill in a pair of shorts you haven’t washed since last summer, it goes toward your debt. Did you recently get a rebate check or win a 50/50 at a civic event? Right toward your debt it goes.

You’d be surprised how quickly found money, or debt snowflakes, can make an impact on your smallest debt when gathered together.

What’s The Difference Between The Debt Snowball And The Debt Avalanche?

The debt avalanche is a competing method for paying off your debt. The debt avalanche method correctly notes that it makes more financial sense to pay off your highest-interest debt first, and organizes your repayment strategy accordingly. In other words, your highest-interest credit card debt would be your first target, followed by your second-highest interest debt and so on.

If you feel like those early, frequent celebrations won’t be important for rewarding and reinforcing your successes, the debt avalanche method could save you money in the long run.

Which Strategy Is Best For A Person With Multiple High-Interest Credit Card Account Balances?

If you have a serious amount of high-interest credit card debt – and especially if that debt is spread over several accounts – you might benefit from debt consolidation . With a debt consolidation loan, you can pay off all those balances and repay the loan with one monthly payment at a potentially lower interest rate.

However, for this strategy to work, you’ll still have to stop using those credit cards that got you into trouble in the first place. But make sure not to cancel them, as that could damage your credit score.

Which Method Should I Use, The Snowball Or Avalanche?

The best debt repayment plan is the one you stick to and that will get you to its ultimate goal: financial freedom. Being debt-free lifts a tremendous burden from you and allows you to take control of your financial future.

The differences between the debt snowball and the debt avalanche are psychological as well as financial. Don’t discount the psychological impacts of those early victories. For many, it’s the difference between creating new and healthier habits and falling back into old ways. 

Be forewarned, however. Neither of these methods will work unless you reign in your credit card spending. The hardest part of debt repayment just might be resisting the temptation to use the credit now available to you. It’s another good reason to hand the cards over to someone else, particularly before you start to see the light at the end of the debt tunnel.

Final Thoughts: Snowflakes, Snowballs And Avalanches Can Melt Your Debt Away

Whichever strategy you choose, stick with it and learn to live within your means. That could mean looking for ways to cut your expenses, increase your income or both.

Ready to apply for a debt consolidation loan? Here at Rocket Loans, we pride ourselves on how quickly we can get your money to you. You could have those credit cards paid off – and a stable fixed monthly payment in their place – within a couple of business days.

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