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The Debt Snowball Method – Easy Steps Towards Becoming Debt-Free

5 min read
Evan Zimmer By Evan Zimmer Apr 24, 2020 | Updated Apr 27, 2020

The snowball method is one of many debt-reduction strategies. It involves tackling your balances one by one, from your smallest debt to your greatest, increasing your monthly payments as you go.

It’s a great way to build up confidence with a string of victories, and can lead to fairly quick improvement in your credit.

Watching debt grow can be intimidating. $100 of debt can all too easily become $1,000 in a matter of months or years, and your credit scores can begin to bow beneath that kind of weight. So how do you get out from under it?

First and foremost, you’ll want to take inventory of all outstanding debt, along with your required monthly payments, and then create a budget for yourself. Next, find out how much money you can afford to put towards those debts each month.

Once you’ve figured that out, list your debts from the smallest balance to the greatest, and pay off the smallest first, then repeat.

The Debt Snowball Method

Picture this: It’s a perfect snowfall in late December. The ground is covered in glistening snow, ideal for packing. Naturally, you’re getting ready to build a snowman.

The base needs to be large and strong. You crouch, scoop a handful of cold snow, and crunch it and shape it in your hands. But that tiny snowball won’t help you much, so you place it on the ground and begin to roll it.

It starts off tiny, but as you continue to push it across the snow-laden ground, it grows in size. The larger it gets, the more snow it can pick up with each roll. Eventually, you’ll have a great boulder of snow to work with.

That’s the basic concept behind this method, which was popularized by Dave Ramsey, a New York Times bestselling author and purveyor of personal finance methods. The idea is to pay off each of your outstanding debts, beginning with the lowest balance and moving on from there.

As you pay off each debt, you’ll have more money available, like more snow sticking to your original snowball the longer it rolls. Eventually, you’ll have a much more sizable amount of money to put towards the remaining debts.

How It Works

This strategy is best suited for people who have several small debts, owe balances on a number of credit cards, or simply want to build their confidence before tackling the larger balances. Watching small balances fall away rapidly can do wonders for that.

So let’s say you have four debts:

Loan Balance Interest Rate
Credit Card A $900 22%
Credit Card B $4,800 16%
Credit Card C $435 20%
Student Loan $35,000 6%

Now, list them from the smallest balance to the greatest:

Loan Balance Interest Rate
Credit Card C $435 20%
Credit Card A $900 22%
Credit Card B $4,800 16%
Student Loan $35,000 6%

With everything in the correct order, here’s what you do:

  1. Be sure you’re making the minimum payment required each month on all of your debts.
  2. To start, put every extra cent you can manage towards bringing down Credit Card C (the lowest balance).
  3. After you’ve paid off Credit Card C, take all the money you were putting towards that and move on to your next lowest balance, Credit Card A.
  4. Once that’s paid to zero, the next one in your sights is Credit Card B.
  5. Finally, you’re ready to tackle your student loan debt with all of your additional funds from the previous debts backing you up.

As each outstanding balance disappears, you’ll have extra money to put towards the next debt in line. So when it comes time to take out that $35,000 giant, you can lob your now-massive snowball and do some serious damage to your remaining debt.

Advantages & Disadvantages of the Debt Snowball Method

The snowball method could lead to a positive impact on your credit fairly quickly. As the number of your outstanding balances starts to decrease, and your credit utilization on individual credit cards falls, your scores may start to shape up.

Having lower credit card utilization will create less of a negative impact on your credit scores. The lower the utilization the better (although 1% can be slightly better than 0% utilization in some scoring models).

In addition, reducing the number of accounts with balances can help your credit scores. Like credit utilization, the number of cards with balances you have factors into the second-largest category that determines your FICO credit scores (amounts owed). So if you can knock out some of the lower balances via the snowball method, you could see improvement in your credit scores.

And knocking out those smaller balances rapidly can keep you motivated as you’re gearing up to take on the larger balances.

The better your credit, the more money you might be able to save in other aspects of your life. People with high credit scores get the best terms on financial products. That includes the lowest interest rates, access to top rewards programs, and special offers. Having lower interest rates on your loans, credit cards, and mortgages can save you a lot of money in the long run.

If your credit improves you may qualify for a balance transfer credit card, or other refinancing and debt consolidation options, which could let you pay down your debts at lower interest rates (even zero percent!).

On the downside, however, while you’re tackling the smaller debts, the other balances may continue to grow if they have large interest rates. While the snowball method gives you a string of small victories and potentially faster improvement in your credit, you might end up paying more money over time than if you had started paying off the balances that have higher interest rates first.

Want to know more about credit scores? Take a look!

What’s In Your Credit Score?

The Debt Avalanche Method

With this strategy, you’d start with the debt that has the highest interest rate rather than the smallest balance. Not only could this save money in the long run by limiting high-interest debt, but you may be able to get out of debt faster.

So, keeping with the original example, here’s what your debt prioritization would look like:

Loan Balance Interest Rate
Credit Card A $900 22%
Credit Card C $435 20%
Credit Card B $4,800 16%
Student Loan $35,000 6%

You may not see as fast of an improvement in your credit utilization and credit scores going this route, but you will see improvement eventually. It’s more of an investment that’ll pay off in time, rather than the culmination of quick wins that the snowball method provides.

Like an avalanche, once you begin to make progress you’ll gain an unstoppable momentum. Picture your debt-snowman, cobbled together at the base of a great mountain. An avalanche hurtles down the slope, not even noticing as it plows into the snowman, decimating it completely. That’s the idea behind this method.

Wrapping Up

With the debt snowball method, a string of small victories can encourage you to take down your largest debts, each one increasing the amount you can put towards the next. The debt avalanche method flips that a little bit, focusing on the debts with the highest interest rates first, saving you money in the long run.

Generally, we recommend the avalanche method, since it saves you the most money on interest charges.

There are a few other tools you can use while tackling debt, sometimes paired with the snowball or avalanche method. These include:

Whichever course you choose, your debt is not an undefeatable enemy. With the right tactic, you can achieve a more secure financial standing and get that much closer to being debt free.

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At a glance

The snowball method provides a strategy to pay down debts, starting with your lowest balance and working your way up. With each debt you pay off, you’ll have more funds to take on the next. There is another option however, that can save you more on interest payments.

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