How to Use the Debt Snowball Method to Pay Off Debt

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Paying off debt can be difficult, especially if you don’t have a plan of attack.

There are two popular debt repayment strategies that most people use to pay off debt: the debt avalanche and debt snowball. 

Although I personally recommend the debt avalanche, the debt snowball has its own merits and is a formidable contender for best debt repayment method.

What is the Debt Snowball Repayment Strategy?

The debt snowball is a method for paying off debt that entails listing out your debts, sorting them from lowest balance to highest balance, and paying them in that order.

The main benefit of this strategy is that you pay off individual debts faster.  This gives you motivation to continue and maybe even accelerate payments on your debt. 

How to Use the Debt Snowball Method to Pay Off Debt

To get started, list out all of your debts separately.  This includes:

• Student loans
• Credit cards
• Car loans
• Personal loans
• Outstanding bills (medical debt, etc.)

For each debt, list the amount you owe, the minimum monthly payments, and the issuer. 

Sort the list from lowest balance to highest balance. 

Pay the minimum payment on each of your debts every month.  Any money left over after paying the minimums should be used to pay down the principal of the debt with the lowest balance.

You will continue doing this, one debt at a time until you are debt-free.

Ways to Earn Extra Cash to Put Towards Paying Down Debt

A few quick ideas for making a little extra cash to pay down debt:

• Cut expenses from your monthly budget and apply this to debt repayment
• Apply any money from raises or bonuses to paying down debt
• Use tax refund money to pay down debt
• Apply inheritance to paying off debt
• Try one of these 50+ ways to make extra money

In a nutshell, any money that enters your life that isn’t already earmarked for your needs each month can be used to pay down debt.

Debt Snowball Example

For instance, let’s say you have $1,200 to put towards paying down debt each month and have the following debts:

•     $5,000 in student loan at 4.5% interest and a minimum payment of $300 each month
•     $6,000 in credit card 1 at 15% interest and a minimum payment of $75 each month
•     $10,000 in credit card 2 at 20% interest and a minimum payment of $170 each month
•     $5,500 in an auto loan at 6% interest and a minimum payment of $400 each month

To start, we need to organize this debt by lowest balance.  To do this, I recommend a quick excel sheet with five columns: loan type, loan amount, minimum payment, and loan issuer.

Next, sort by the lowest balance.  In this case, the student loans are the lowest balance.

Next, add up the minimum payment column to see how much the minimum payments will add up to each month.  Subtract this amount from the $1,200 we have available each month to put towards paying off debt. 

After paying the minimum payments each month you have an additional $255.00 to put towards paying down the $5,000 principal of your student loan.

Once you’ve paid off the student loan, you’ll start working on Credit Card 1 since it has the next lowest balance.  Also, in addition to the $255, you’ll have $300 more freed up each month (the paid off Student Loan minimum payment) to put towards paying off debt.

This will continue until you’ve paid off all of your debt.

Why Does the Debt Snowball Work?

The debt snowball works because its focus on paying down lower balances and eliminating dates faster gives people the feeling that they have control over their finances. 

This control motivates them to continue.  It helps them see that debt is not inevitable.  That it can be eliminated with a little hard work and discipline.

Pros and Cons of the Debt Snowball Strategy

Pros:

• Eliminates the number of debts quickly
• Provides motivation in the form of small wins

Cons:

• May take longer to pay off overall debt than alternative debt payoff methods
• May cost more overall than alternative debt payoff methods

Debt Snowball Versus Debt Avalanche

An alternative to the debt snowball is the debt avalanche repayment method.

The debt avalanche method entails paying off debt with the highest interest rate first. 

What are the Key Differences Between the Debt Avalanche and Debt Snowball?

Conclusion

It’s hard to argue with the success that Dave Ramsey has had with promoting the debt snowball strategy.  He’s helped more than 5 million people pay off debt promoting this method.  If you struggle with motivation and are easily discouraged, the debt snowball may be right for you.

However, if you are looking for the debt repayment method that pays off debt the quickest with the least amount of interest expense, then the debt avalanche is right for you. 

What method are you using to pay off debt?  Why did you choose it?