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Debt can feel overwhelming, especially when juggling multiple balances. With U.S. consumer credit debt reaching over $5 trillion as of Q3 2024, having a structured repayment strategy is more important than ever.

The snowball debt method offers a structured way to tackle debt, focusing on small victories to build momentum. This approach emphasizes motivation and psychological wins, which can be crucial for those struggling to stay on track with debt repayment.

What is the Debt Snowball Method?

The debt snowball method is a repayment strategy where you focus on paying off your smallest debt first while making minimum payments on all others. Once the smallest debt is cleared, its payment is rolled into the next smallest debt. This process continues until all debts are eliminated, with payments growing larger over time, much like a snowball rolling downhill.

Why Start with the Smallest Debt?

Prioritizing the smallest balance allows for quick wins, which boosts motivation and reinforces positive financial habits. While this method does not focus on minimizing interest payments, it leverages the power of psychological reinforcement to keep individuals committed to their repayment plans.

George Kamel, a personal finance expert and an author, writes about how he successfully used the debt snowball method to pay off $40,000 of consumer debt in just 18 months. In his blog, he explains that this method worked for him because it provided quick wins by eliminating small debts first, which motivated him to keep going. He emphasizes that behavior and mindset are more important than just numbers when tackling debt.

By paying off his smallest debts first, he built momentum and confidence, making it easier to tackle larger debts.

How Payments Snowball Over Time

As each debt is paid off, the amount that was allocated to it is added to the payment of the next debt on your list. Over time, this results in increasingly larger payments that accelerate debt clearance, making repayment feel more manageable and structured.

Implementing the Debt Snowball Method

If you are struggling with paying off your balances, start with the snowball method using the following steps:

Create a List of Debts From Smallest to Largest

Begin by listing all your debts in ascending order of balance. Ignore interest rates for now. The focus is on clearing the smallest debts first. With 28% of Americans citing credit card bills as their main source of non-mortgage debt in 2024, credit card balances often make a good starting point for the debt snowball method.

Pay Minimum on All Debts Except the Smallest

To stay current and avoid penalties, keep making minimum payments on all your debts. However, any extra funds should go toward eliminating your smallest debt first. This method, known as the debt snowball strategy, helps you build momentum and stay motivated. Each time you clear a debt, you free up more cash to tackle the next one, accelerating your journey to financial freedom.

Apply Any Extra Money to the Smallest Debt

Whenever possible, allocate additional funds such as tax refunds, bonuses, or savings from cutting unnecessary expenses toward the smallest debt to eliminate it faster.

Continue the Process Until All Debts Are Paid

Once the smallest debt is paid off, roll its payment into the next-smallest balance. Repeat this process until all debts are cleared.

Beyond just paying off debt, the debt snowball method offers psychological and financial benefits that keep you motivated. In the next section, we’ll explore why this strategy can be so effective and how it can help you stay on track.

Advantages of the Debt Snowball Method

If you follow the debt snowball method, you can build momentum and stay motivated, making it easier to stay committed to your debt-free journey. Here’s how this method can benefit you:

Increases Motivation Through Quick Wins: Seeing debts disappear one by one provides a strong psychological boost, reinforcing positive financial habits.

Builds Financial Confidence and Discipline: Successfully paying off smaller debts fosters confidence, making it easier to stay disciplined and committed to a debt-free future.

Simple and Easy-to-Understand Application: Unlike complex financial strategies, the debt snowball method is straightforward, making it accessible to anyone, regardless of financial expertise. This ease of use is what sets it apart from other approaches, like the debt avalanche method, which prioritizes paying off debts with the highest interest rates first.

Debt Snowball vs. Debt Avalanche: Which One is Right for You?

While the snowball method focuses on psychological momentum, the debt avalanche method prioritizes cost efficiency by targeting high-interest debts first. Below is a comparison:

Aspect

Debt Snowball

Debt Avalanche

Focus

Smallest balance first

Highest interest rate first

Motivation

Quick wins boost morale

Requires patience for long-term savings

Interest Savings

This may result in paying more interest

Minimizes total interest paid

Complexity

Simple and easy to follow

Requires tracking interest rates

For those who need emotional reinforcement, the snowball method is a great option. However, if saving money on interest is a higher priority, the avalanche method might be a better fit.

Challenges of the Debt Snowball Method

While the debt snowball method has its own benefits, it may pose some challenges:

Might Result in Paying More in Interest Over Time

Since it does not prioritize the highest interest rates, this method may lead to higher overall interest costs compared to other strategies, like the debt avalanche method.

For example, suppose you have the following debts:

$5,000 credit card debt at 18% APR (minimum payment: $150)
$10,000 personal loan at 8% APR (minimum payment: $200)
$15,000 car loan at 5% APR (minimum payment: $300)

If you use the debt snowball method, you’d start by paying off the $5,000 credit card debt first, even though it has a high interest rate. Meanwhile, interest continues to accumulate on the larger balances. Over time, you might pay $1,500–$3,000 more in total interest compared to using the debt avalanche method, which targets the highest-interest debt first.

Higher Interest Debts May Linger Longer

By focusing on small balances first, debts with high interest rates may take longer to pay off, potentially increasing the total repayment amount.

For example, if you have:

$2,000 medical bill at 0% interest
$7,000 credit card debt at 20% APR
$12,000 student loan at 6% APR

The debt snowball method pays off the $2,000 first, letting the high-interest credit card debt accumulate. This could cost $2,000–$4,000 more in interest compared to the debt avalanche method, which targets high-interest debt first.

Comparison to the Debt Avalanche Method

The debt avalanche method, which prioritizes high-interest debts first, can save money in the long run. However, it lacks the quick psychological wins that make the snowball method so effective for many people.

Tips to Enhance Debt Snowball Progress

Want to pay off your debts even faster? While the debt snowball method is effective on its own, a few strategic moves can help you gain even more momentum. Try these tips to maximize your progress:

Consider Reducing Interest Rates Through Consolidation

If possible, consolidate high-interest debts into a lower-rate loan to make repayment more manageable while still following the snowball method.

Example of the Debt Snowball Method

A Reddit user shares how Dave Ramsey's debt snowball approach helped him take a load off his shoulders. He says:

"I currently have three credit cards holding balances—one at $3,000, one at $8,200, and one at $15,000. I had $3,000 to put toward my credit cards. In the past, I would split it between the three, and I’d still have three credit cards holding balances and three payments to make every month. Instead, I paid off that first credit card. I feel like a small load has been taken off my shoulders. It’s great. I hate myself for getting into debt in the first place and swore I’d never do it again. Now, we’re at the next target to focus on ($8,200) instead of still worrying about that first $3,000."

When is the Debt Snowball Method Suitable?

The debt snowball method is an effective approach for those who thrive on small victories and need a clear, structured plan to stay committed to debt repayment. By focusing on eliminating smaller balances first, this method provides a sense of accomplishment that fuels motivation to tackle larger debts. However, it may not be the best solution for everyone—especially those with overwhelming long-term debt or those who prefer a more interest-efficient strategy.

Here are key factors to consider when deciding if the debt snowball method is right for you:

Best for Those Needing Early Wins for Motivation: If staying motivated is your biggest challenge, this method keeps you engaged by providing quick progress as small debts are paid off first.
Consider Debt Relief If Debts Require Extensive Periods to Clear: If your total debt is so high that repayment would take decades, it may be worth exploring options like debt settlement, consolidation, or bankruptcy to find a more manageable solution.
Use a Debt Repayment Calculator to Track Progress: A repayment calculator can help you estimate your debt-free date, giving you a clear picture of how long the process will take and keeping you accountable.
Ideal for Those with Multiple Small to Mid-sized Debts: If you have several debts of varying sizes, the snowball method simplifies repayment by eliminating accounts one at a time, reducing financial stress.
Not Suitable for Those Prioritizing Interest Savings: Since the snowball method ignores interest rates and focuses on balance size, those wanting to minimize overall interest costs may find the debt avalanche method a more effective alternative. If you’re unsure which method aligns best with your goals, Shepherd Outsourcing Services can help you evaluate the pros and cons of each and find the most comfortable and convenient solution.

Summing Up

The debt snowball method is a powerful approach for anyone who struggles with staying motivated while paying off debt. While it may not minimize interest costs as effectively as other methods, its psychological benefits often lead to greater long-term success. By focusing on small victories and building momentum, you may find yourself reaching financial freedom faster than expected.

If debt feels unmanageable, debt settlement services like Shepherd Outsourcing Services can provide tailored solutions to help you regain financial control. Whichever method you choose, taking consistent steps toward repayment is the key to financial freedom.