What is the debt snowball method?

Dealing with debt can feel difficult, but there are a few different strategies you can use to make it more manageable. Two popular methods are the debt avalanche and debt snowball methods.

The debt snowball method focuses on paying off your smallest debt first, while the avalanche method focuses on paying off the highest-interest debt first.

There are pros and cons to each method. Here we’ll break down how the debt snowball method works and help you decide if it’s right for you.

Key takeaways

• The debt snowball focuses on paying off your smallest debts first.
• Each time you pay off a debt, you can put that loan’s payment toward your next debt.
• Your payments grow bigger, like a snowball rolling downhill, accelerating your progress toward being debt-free.

How the debt snowball method works

If you’re using the debt snowball strategy, you start by paying off your smallest debt first. Once you pay that loan off, you move on to the next smallest one. Any money you were previously putting toward the loan you paid off can now help pay off the next one.

Over time, the amount you’re paying toward your smallest loan will grow, just like a snowball rolling downhill. You continue following this process, letting the size of your payment toward your smallest debt grow until you’ve paid off all of your debt.

How to start a debt snowball

If you want to use the debt snowball method to pay off your loans, follow these steps.

1. Add up your debts

The first thing to do when coming up with a debt repayment plan is to take inventory of all of your debts. Add up all the money you owe, including your mortgage, auto loan, credit card debt, student loans, and personal loans.

Then, total up your monthly payments and use that information to calculate your debt-to-income ratio.

2. Organize your debt

Once you’ve taken stock of all the loans you have, order them from smallest to largest based on the amount owed.

Throughout the debt repayment process, you’ll make the minimum payment on all of your debts except for the smallest one on the list. Any extra money you have for additional payments will go toward paying off your smallest debt more quickly.

3. Focus on your smallest debts

Once you’ve ordered your debts from smallest to largest, it’s time to start the process of paying off your loans. Put any extra money you can afford to toward your smallest debt.

Once that loan is paid off, take any money that was going toward that loan’s minimum payment and put that, plus any extra cash you have, toward extra payments on the next smallest loan you have.

4. Gather debt snowflakes

In keeping with the wintry theme, debt snowflakes refer to money you can use to help your debt payments snowball. Any excess cash you have should go toward paying off debt. If you get a birthday gift, bonus, tax refund, or the like, put it toward your debt. The more money you can put toward extra payments, the faster you’ll be debt-free.

Even a small snowflake can turn into a big snowball, so don’t worry if you’re only putting a few extra dollars toward your loans here and there. Every bit helps.

Debt snowball vs. debt avalanche

The key difference between these two methods is which loans get prioritized. With the snowball method, you pay off the smallest loans first. With the avalanche method, you pay off the loans with the highest interest rates.

The avalanche method has the benefit of saving you more money in the long run, but the snowball method has its own advantages, such as freeing up your monthly cash flow more quickly.

Debt snowball pros and cons

The debt snowball method is a good strategy for people who are looking to pay off their loans, but it’s important to consider its pros and cons before you commit.

Pros

These are some of the benefits of the debt snowball method.

• Quick wins. By focusing on the smallest debts first, you’ll get a quick feeling of success as you pay off debts. This can help keep you motivated to pay off your loans.
• Focus on one thing at a time. If you have a lot of loans, it can feel like an insurmountable problem. By focusing on just one loan at a time, the snowball method makes the task feel more manageable.
• Free up cash flow. Each loan you have comes with a minimum monthly payment you must make. Each time you pay off a loan, that’s a minimum payment that you don’t have to worry about every month. By knocking out smaller loans quickly, you can have a bit more wiggle room in your monthly budget, which is important if you’re struggling to make ends meet.
• Focus on pay off, not pay down. The snowball method is all about paying off debts rather than reducing the interest rate impact, which can be more satisfying for some.

Cons

There are some downsides to using the debt snowball method, such as:

• You’ll pay more in the long run. By focusing on small debts rather than high-interest debts, you’re letting more interest accrue, so you’ll pay more money overall.
• Compounding interest can make debt take longer to pay off. Most loans have compound interest, meaning the interest that accrues on your loan accrues interest itself. That adds to the cost of borrowing.

FAQ

Here are some key things you need to know to make sure you understand the debt snowball method and whether it’s right for you.

What method is best for high-interest credit card debt?

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 more 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. If you’re interested in debt consolidation, considering a personal loan is a popular option for many borrowers.

Which is better: the debt avalanche or debt snowball?

Choosing the better method for you depends on what you ultimately want from a debt repayment plan. Do you want the early and frequent victories of paying off your smallest debts, or would you rather save money by paying down your higher-interest debts first? The best debt repayment plan is the one you stick to and the one that’ll get you closest to your ultimate goal: financial freedom. Being debt-free can lift a tremendous burden and allow you to take control of your financial future.

Which method should I use: the snowball or the avalanche?

Choosing between the debt snowball and avalanche methods requires understanding your financial situation, goals, and psychology.

If you want to free up some monthly cash flow or want a quick win that can motivate you to stick to your payment plan, the snowball method is the way to go. If your goal is to minimize the amount of money you pay in interest, the avalanche method is the better choice.

The bottom line: The debt snowball method can melt your debt away

The debt snowball method is one strategy for people who want to pay off their loans. By focusing on the smallest debts first, you can get motivation from the quick win of paying off a loan and free up some money in your monthly budget.

If you’re ready to start your debt repayment journey and have high-cost loans, such as credit card debt, consider working with Rocket Loans to apply for a personal loan you can use to consolidate your debt.