When it comes to tackling your debt, nothing can be as motivating as building momentum. You can feel when momentum is on your side. You feel energized. It’s as if you can’t fail.
One popular way to build debct-payoff momentum is by using the debt snowball method.
With this method, you start with small wins and use the momentum they provide to start landing bigger wins on your journey to getting out of debt once and for all.
How The Debt Snowball Method Works
The debt snowball method is a debt payoff strategy used for eliminating non-mortgage balances.
Its name is derived from the idea that you can think about your payoff progress as though it’s a snowball: it starts out very small and gets bigger and bigger as it rolls along.
With this approach, you pay off your debts in the order of smallest amount to largest amount, regardless of the interest rate.
In practice, that means you put everything you can towards paying off the smallest balance first while still making the minimum monthly payments on your other debts.
As an example, let’s say you had the following debts:
| Debt | Amount | Interest Rate |
| Credit Card #1 | $500 | 18.4% |
| Credit Card #2 | $4,500 | 13.2% |
| Auto Loan | $3,200 | 8.5% |
| Student Loan | $25,000 | 6.2% |
Here’s the order you’d pay them off in:
| Debt | Amount | Interest Rate | Order |
| Credit Card #1 | $500 | 18.4% | 1 |
| Credit Card #2 | $4,500 | 13.2% | 3 |
| Auto Loan | $3,200 | 8.5% | 2 |
| Student Loan | $25,000 | 6.2% | 4 |
Upon elimination of the lowest balance, you’d then move on to the next smallest debt:
| Debt | Amount | Interest Rate | Order |
| Credit Card #2 | $4,500 | 13.2% | 2 |
| Auto Loan | $3,200 | 8.5% | 1 |
| Student Loan | $25,000 | 6.2% | 3 |
Debt Snowball vs. Debt Avalanche
The most popular alternative to the debt snowball method is the debt avalanche, which entails paying off your debts in the order of highest interest rate to lowest interest rate (while still making the minimum monthly payments on your other debts).
So, keeping with the previous example, using the debt avalanche your debts would be paid off in the following order:
| Debt | Amount | Interest Rate | Order |
| Credit Card #1 | $500 | 18.4% | 1 |
| Credit Card #2 | $4,500 | 13.2% | 2 |
| Auto Loan | $3,200 | 8.5% | 3 |
| Student Loan | $25,000 | 6.2% | 4 |
The advantage of the debt avalanche method is that you’ll pay less in interest over time, and (theoretically) get out of debt faster.
However, as I discuss below, that’s not always how it works in reality.
Why The Debt Snowball Works
Critics of the debt snowball method point out that paying your debts in order from smallest to largest could mean paying more in interest over time.
In our example, the car loan (with a $3,200 balance) would be paid off before Credit Card #2 (with a $4,500) balance, even though its annual interest rate is nearly 5% lower. That would indeed result in paying more in interest.
However, advocates of the debt snowball method point out that it gives you the highest chance of success in actually paying off your debt. And in the end, that’s what really matters.
Why might this approach be more effective for most people in most situations?
There have been a few interesting studies that have compared the two methods.
First, a study from a team at Northwestern University found that the debt snowball method was a better strategy for those with multiple credit card debts.
Similar results were found in a study published in The Journal of Consumer Research were they found:
“People are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest.”
I tend to agree with the research. Most people will benefit from going with the debt snowball method, because it recognizes the important power that human psychology has on our financial behavior.
In a perfect world, everyone would pay off their debts based on the mathematical formula that saves them the greatest total amount of money. But in a perfect world, where consumers always make responsible financial decisions, there wouldn’t be so much debt that needs to be paid off.
The debt snowball method takes a situation that can feel overwhelming and out of your control, and reframes it in a way that helps you focus on taking concrete steps that lead to real victories.
Once you notch one small win, it’s psychologically easier to notch another, and then another.
On one level, this is valuable because it demonstrates that your efforts are actually paying off. But on top of that, every small victory tangibly reduces the number of steps you have to take in order to achieve your ultimate goal.
Five debts becomes four, and then four become three. And before you know it, all that’s left to deal with is the one big whale.
And that makes it easier to focus on doing what needs to be done to get over the final hurdle.
Of course, there are exceptions — which is why I recommend always running the numbers yourself to see the difference between the two methods.
If the debt snowball method will cost you dramatically more over time, then you may want to consider whether you can apply (and stick to) to the avalanche approach.
Our Debt Snowball Worksheet
To help you run the numbers for yourself, we created a free debt snowball calculator/worksheet inside of Google Sheets.
The file is locked from editing, so the first thing you’ll need to do is go to File > Make a Copy. This will give you your own private version of the spreadsheet.
Note: Because of some differences in Google Sheets and Microsoft Excel, this spreadsheet doesn’t work in the latter. So you’ll need to be logged into a Google Account (e.g., Gmail) in order to save a copy of the spreadsheet to your Google Drive.
The rest of this post will walk you through the entire debt snowball process, from beginning to debt-free.
Step 1: Create A Monthly Budget
First things first: you’ll need to know how much money you have available to apply to your debt snowball each month.
To get this figure, you need to create a monthly budget that shows the difference between your income and expenses.
If you’re using the debt payoff spreadsheet, this is located on the first tab:
To save time, you can also use a free budgeting app like Rocket Money that automatically syncs, sorts and categorizes past transitions. See our Rocket Money review for more info on how it works.
Related Reading: The best budgeting and personal finance apps.
Step 2: List Your Debts
For some people, the scariest part of the process is figuring out how much you actually owe.
But don’t beat yourself up for carrying a large amount of debt. What’s done is done. At this point, past decisions don’t matter. The only thing that matters now is what you do from here on out.
The first thing you want to do is gather all your loan statements and/or account logins. But don’t stop there. To make sure you’re paying off any and all debts, you want to get a copy of your credit report.
Many people have debts they didn’t realize are still out there on their credit report. So, if you really want to become debt-free, don’t skip this.
A quick and no-cost way to get your report is to sign up for Credit Karma. It just takes a minute to sign up, but you’ll be getting access to valuable information and tips.
With Credit Karma, you’ll get a free credit score, the ability to view your credit history, and a comprehensive list of both how much money you owe and to which companies you owe it. It tells you what your monthly payments are, your interest rates, and if any of your debts are in collections.
In short, it will give you a complete picture of your debt and save you a lot of time.
Learn more: Read our Credit Karma review.
Once all the information is gathered, head over to the second tab on the spreadsheet and complete each column:
Step 3: Make Your Minimum Payments
For every debt besides the one with the lowest balance, you’ll be paying the minimum due.
To save yourself some time each month, I’d automate each minimum payment. This also eliminates the chance for potential late payment fees, which may hurt your credit score.
Pro Tip: If you’re concerned that setting up automated payments might put you at risk of overdrawing your account, consider switching to a bank that doesn’t gouge you with overdraft fees. One of our favorites right now is the online-only Chime, which has no overdraft or insufficient funds fees.
Step 4: Tackle Your Smallest Debt
Now it’s time to put every penny of extra money toward the debt with the smallest balance — every single month until it’s paid off. Any wiggle room in your budget should be devoted to this cause.
If you completed the spreadsheet, the amount you’ll have to throw at that debt is listed in the top right corner.
Step 5: Move On To The Next-Smallest Debt
Thanks to all of your hard work, you’ve paid off your first debt. Congratulations!
That excitement and sense of encouragement you’re feeling? That’s momentum!
Now keep using the debt snowball method to tackle your next challenge.
Move on to the next-smallest debt, adding in the payment you were making on the last debt.
For instance, if you were paying $100 on a credit card balance that you just retired, that $100 will now go toward the next debt (in addition to the minimum monthly payment you were already making on it).
Step 6: Rinse And Repeat
Keep using the debt snowball method to knock out all your debts, one by one. As you retire each debt, keep adding what you were paying towards the next debt.
Before long, you’ll find yourself on your last one! Keep plugging away at it until your debts are totally gone.
Debt Snowball FAQ
Dave Ramsey is responsible for branding and popularizing the term “debt snowball,” which is Step #2 in his popular baby steps wealth-building framework. As for the strategy itself, it was around long before Ramsey gave it a name.
Dave Ramsey lists having a baby, losing your job, going through a health crisis, going through a major life change (like a divorce), and bills owed to the IRS as reasons that may cause you to pause your debt snowball.
First things first: you need to run the numbers yourself. You’ll just need to change the dropdown menu on the spreadsheet from “Debt Snowball” to “Debt Avalanche” to see the difference between the two.
Specifically, pay attention to what each will cost you. Is it the difference between a few hundred dollars? If so, I’d stick with the debt snowball method. And this is most often the case.
On the other hand, is it thousands of dollars? If so, I’d start leaning towards the debt avalanche method.
Bottom Line: Start Looking For Small Wins
You’ll reach your debt-free status much faster if you look for quick wins to speed up this process. Small wins will help you free up more money to cut that debt quicker.
That will help you with your momentum building.
Have you tried the debt snowball method? Did this payoff plan work for you? Have questions about the debt snowball method, or any other aspect of debt reduction?
Let us know in the comments.
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