What is the Debt Snowball Method?

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There’s no one-size-fits-all formula when it comes to getting out of debt. Finding a strategy that works for you is a crucial step toward getting yourself financially on track. One popular debt repayment strategy is the debt snowball method.

When you use the debt snowball repayment strategy, you focus on repaying your smallest balances first. The method has its pros and cons. Here’s what you need to know about the debt snowball and other repayment strategies you could consider.

Debt snowball: What it is and how it works

The debt snowball method is a debt repayment strategy where you focus on paying off your smallest debt first, while continuing to make regular payments on all of your other debt.

After the smallest debt is repaid, you apply the payments that you were previously using toward it to pay the next smallest debt in line, and continue in this way until your debt is done. Gradually, you’ll have more and more money to pay toward subsequent debts down the line.

This strategy tends to motivate people to pay debt — with the snowball method, you can get some quick wins on the board.

“Having a lot of debt can be very overwhelming and getting six to 10 bills in the mail each month is frustrating. Being able to eliminate some of those gives you a psychological boost and makes you feel like you’ve made progress,” said certified planner Elizabeth Windisch. “It simplifies things and the amount of debt that you work with.”

This is what makes the debt snowball method so popular — “I would say half the clients that I see with debts are using the snowball method or inquiring as to if they should,” Windisch added.

But while the method is popular, it does have some disadvantages. Here are some pros and cons of using the debt snowball method and some of the drawbacks.

Pros

  • Could help you gain momentum and motivation to pay your debt.
  • Helps to simplify your bills sooner than some other debt repayment strategies.

Cons

  • Focusing on the smallest debts could mean you hold on to balances with higher interest rates for later, possibly causing you to pay more in interest overall.
  • Repaying the smallest balance may not be as important as repaying off a secured debt first.

Example of a debt snowball

Curious about the math behind the debt snowball method? This is what it could look like in practice. Let’s say you have five debts in the following amounts:

  • $500 at 12% APR
  • $10,000 at 10% APR
  • $275 at 4% APR
  • $1000 at 3% APR
  • $625 at 9% APR

To start, you’d want to order your debts from smallest to largest. Then, while continuing to make the minimum payments on all your debt, you’d analyze your budget to find ways to pay more than the minimum balance for the $275 debt, your smallest debt.

Using the same example, if you paid the $275 you’d move to the next debt in line — $500. You’d direct the funds that were going to pay the $275 toward the $500 while still making minimum payments on the rest of the debt.

Once the $500 debt was paid off, you’d direct additional funds toward your $625 debt. Rinse and repeat until each of your balances are paid in full.

Is the debt snowball method right for you?

Determining whether or not the debt snowball method is right for you ultimately comes down to your personal gut instinct about which repayment strategy you’re most likely to stick with.

“It’s really individual,” said Windisch. “I think for someone deciding for themselves, if they are concerned that they may not be able to stick to it or if they’ve tried to pay off their debt previously and fell back into prior habits, I think the debt snowball works the best because you can see that progress and it is encouraging.”

However, she cautioned that it is important to carefully weigh both sides of the equation when making your own decision — “If you do have a debt where the interest rate is huge, I prefer people work on that debt first, because you might not make any progress due to interest that keeps piling up.”

3 other repayment strategies

The snowball method isn’t the only way to repay your debt. If it doesn’t work for you, here are some other options to weigh.

Debt avalanche

The debt avalanche strategy focuses on ordering your debt by interest rate and paying the debt with the highest interest rate first, before moving on to the others. You continue to make minimum payments on all your debt, and as you pay off certain debts you apply the extra funds available to the next debt in line.

The debt avalanche, also referred to as debt stacking, is essentially the opposite strategy of the debt snowball. Let’s use the same numbers from above. You have five debts in the following amounts:

  • $500 at 12% APR
  • $10,000 at 10% APR
  • $275 at 4% APR
  • $1000 at 3% APR
  • $625 at 9% APR

With the debt avalanche method, you’d prioritize the $500 debt because it has an interest rate of 12%. Then you’d move on to the $10,000 balance and so on.

Should you use the debt avalanche or a debt snowball? The debt avalanche method is the mathematically faster way to get out of debt, since you’re paying less in interest overall. However, it can be less motivating to people, since you don’t necessarily get as many quick wins as you could get with the debt snowball method. If you’re prone to lose motivation, it could be more efficient with you to go with the debt snowball method.

Consolidate your debt

Debt consolidation involves combining all of your debt into one payment by taking out a debt consolidation loan to pay all of your outstanding debts. This could be a good option for paying larger debts, such as student loan debt.

Debt consolidation is commonly done with a personal loan. You take out a new loan to pay off your total outstanding debt. Then, you focus on making payments on the new loan each month.

The upside of debt consolidation is that your new loan may come with more favorable terms, like a lower interest rate, fewer fees and a longer or shorter repayment timeline. This can help you repay your debt in full for less and faster (assuming a shorter repayment term).

Should you use debt consolidation or a debt snowball? With a debt consolidation loan, you would have one, fixed monthly payment that you’d be responsible for at the same time each month until the balance is fully repaid.

There are potential problems with debt consolidation that aren’t inherent with the debt snowball, however. First, you need to qualify for the debt consolidation loan. If you have bad credit it might be challenging to qualify or to get an ideal interest rate. Also, you have to make sure you have the discipline to pay your other debt and close your credit cards and other forms of credit, otherwise you could end up accumulating even more debt.

Balance transfer card

In some cases you might be able to transfer the balance of your credit card debt to a low-interest or 0% APR credit card. This would eliminate your interest for a period of time, usually as long as the introductory rate lasts, and give you an opportunity to pay the principal.

Some credit cards offer low introductory rates or even 0% APR for the first year, and in some cases, even longer. You could potentially get out of debt faster by transferring your debt to a credit card like this, then focusing on paying the debt off before the interest rate increases. After the introductory rate expires you could see a significant jump in the interest rate.

Should you use a balance transfer card or a debt snowball? If you’re able to get approved for a credit card that covers the total amount of your debt, this could be a good method for you, though you might incur a balance transfer fee. However, if your debt is larger than your credit limit on a new card, the debt snowball method might be a better option. A balance transfer may also come with a tighter repayment timeline compared to a debt snowball. If the promotional period on your card end, you’ll have to repay your remaining debt at the higher rate.

But no matter what debt repayment strategy you choose, consistency is key. It’s important to take a close look at your lifestyle, personality and budget and find a strategy you know you’ll stick with.

Getting out of debt isn’t easy, but it is possible. Starting off with the best strategy for you is a crucial piece of the puzzle.

Jolene Latimer has her Master's in Specialized Journalism from the University of Southern California. She's a Canadian living in Los Angeles.

The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.