The Debt Snowball Method Can Help You Get out of Debt

With the Debt Snowball method, early victories will help you maintain crucial momentum on your journey to becoming debt-free.

Living under a pile of expensive consumer debt is no one’s idea of a good time—especially when it’s from credit cards. Sure, only paying the monthly minimum amount due will leave you with extra money in your budget to put towards other living expenses, but it also means that it’s going to take you a looooooong time to get out of debt altogether—and will cost you thousands and thousands of dollars in interest in the meantime.

Paying off all that debt would mean completing a major leg on your journey to financial wellness. But it’s not something that you can just jump into willy-nilly. You’re going to need a plan, a specific debt repayment strategy, and one of the most popular strategies out there is the Debt Snowball. Here’s what you need to know …

Pay off your smallest debts first.

Step one with the Debt Snowball involves taking all your debts like credit cards, personal installment loans, and auto loans—or even your mortgage and student loans, if you’re being very ambitious—and putting them in order from the smallest balance to the largest.

Step two involves cutting back on your monthly expenses in order to free up extra funds. This is the money that you’ll be using to pay off your debts ahead of schedule. We’ll cover this in a little more detail at the end of the post.

Steps three and four go hand in hand. First, you’re going to keep paying the monthly minimum payments on all of your debts. Why? Because skipping even one payment on any of your debt obligations could seriously hurt your credit score.

Next, you’re going to take all of your extra debt repayment funds and you’re going to pay them all towards the debt with the lowest balance. You keep doing this every month until that debt is paid off in full.

Here’s where things get interesting. Once you’ve paid off that first debt, you take the amount you were paying towards its monthly minimum and you add it to your extra debt repayment funds. This is where the Debt Snowball gets its name: The amount you pay towards each subsequent debt keeps getting larger and larger, like a snowball rolling down a hill.

Back to the process: You take that new amount and you pay it all towards the debt with the next largest balance. Once that debt is paid off, you repeat the process, adding its monthly minimum to your extra funds and putting it all towards the next debt. You repeat this process until you’re out of debt entirely!

The debt snowball prioritizes early victories.

All the math whizzes out there might have noticed something slightly odd about the Debt Snowball: It will actually cost you a little bit more money in the long-run than a method that prioritizes paying off debts with higher interest rates.

That’s not a bug, it’s a feature. Paying off debt is hard, and it’s fairly easy to fall off the wagon. After a few months of scraping extra dollars together or working a second job to earn extra funds, who wouldn’t be tempted to just give up and start living a little bit larger once again.

This is why the Debt Snowball prioritizes early wins to help you maintain momentum. Cutting your budget to the bone in order to aggressively pay down debt can really suck. But actually paying off your first debt? That feels great! With the Debt Snowball, you’ll hopefully get the encouragement you need to keep going.

Here’s an example:

Okay, let’s say there’s a guy named Dav, who has $36,000 in high-cost consumer debt that he wants to pay off. After trimming quite a bit of fat out of his budget, he was able to scrounge up $750 extra dollars every month to put towards debt repayment. He’s ready to try the Debt Snowball.

Dave took all his debts—three credit cards, one personal loan, and one auto loan—and placed them in a spreadsheet from smallest to largest. Here’s what it looked like:

DebtBalanceAPRMonthly Minimum
Credit Card A$2,00017 percent$80
Personal Loan$4,0008 percent$125
Credit Card B$8,00023 percent$320
Auto Loan$10,0005 percent$189
Credit Card C$12,00020 percent$360

Right now, Dave is paying a total of $1,074 a month towards his debts—and that’s only covering his minimums! With the extra $750 that he’s allocated for the Debt Snowball, he’ll be paying $1,824 a month.

Dave begins by paying a grand total of $830 per month ($80 + $750) towards Credit Card A. He does this for two months. During the third month, he pays Credit Card A off entirely, which means that he starts putting funds towards his Personal Loan.

With the Debt Snowball method, Dave takes the $80 that he was paying towards the monthly minimum for Credit Card A and he adds it to the $750. Now, he has an extra $830 that he is paying every month towards his Personal Loan in addition to its $125 monthly minimum. After four months, he’s paid the loan off entirely.

Dave repeats the process, taking the $125 monthly minimum on his Personal Loan and adding it to the $830 in extra debt repayment funds. Now he has an extra $955 to pay off  Credit Card B on top of its $320 monthly minimum.

All in all, it will take Dave 23 months (almost two years) to pay off all his debts, saving him approximately $5,300 in interest. To learn about more about the Debt Avalanche repayment method, which will save you even more money in interest overall, check out this post.

It all starts with a better budget.

Paying down your debts is a great way to take control of your financial future. It’ll help your credit score and will leave you with extra money in your monthly budget that you can use to build up an emergency fund or save for retirement.

Building up your savings is no small thing. The more money you have at your disposal via savings or an emergency fund, the less likely you’ll be to turn to predatory no credit check loans and short-term bad credit loans like payday loans, cash advances, and title loans during a financial emergency. Heck, if you aren’t paying down debt every month, you might not even need to dip into your savings in order to pay a surprise medical or car repair bill!

But let’s not get ahead of ourselves. First, you’ll have to start paying off those debts. Once you’ve got started on the Debt Snowball and you’ve experienced the rush of paying off that first online loan or credit card, the process should get pretty smooth. It’s getting started that’ll be the hard part.

Namely, the hard part is going to be scrounging up those extra debt repayment funds. That means either building your first-ever budget or severely tightening the one you’re using right now. Either way, it’s going to be a difficult task—one that will require hard work and perseverance.

Here’s the good news: You don’t have to do this alone! To read more about how you can build a better budget—or build your first budget ever—check out these related posts and articles from OppLoans:

Have you ever used the Debt Snowball to pay down your debt? Let us know! You can find us on Facebook and Twitter.

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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.