Debt Snowball Method

Debt Snowball Method

With the debt snowball method, borrowers will reward themselves with a good payoff technique for the repayment path. To kick off the process, you pay the smallest amounts of debt then roll the rest amount used to pay the first debt into paying off the more significant ones. 

If you have any experience building snowballs as a young kid, then the debt snowball concept should not come to much of a surprise. You are probably aware that the easiest and fastest way to get a large snowball is to start small and allow traction on a tight snowball. This method is an excellent way to build effective snowballs and an even more powerful way to pay off non-mortgage debts.

When it comes to applying this system to debts, borrowers will have the initial satisfaction of abolishing their obligations one by one. This will keep you going and moving to eliminate all present debts.

What Is The Debt Snowball Method?

Popular talk show host Dave Ramsey introduced the 5 step method of debt snowball to his listeners. With a simple approach, almost anyone with an unbearable debt can apply this method to relieve debt.

How To Snowball Debt

First, make sure that you have budgeted your expenses and income well enough to cover the minimum monthly payments for each debt that you hold.

After you do so, it is time for proper arrangement. Organize the debts by balance, from smallest to the most considerable amount, without any regard to their interest rates.

Once all the ground rules have been set, allocate the extra cash you have budgeted towards the smallest debt. Even though this means that you may be paying more interest on other loans, it is essential to tackle one at a time. So this means you will be making minimum payments on all your debts but pay extra on the small debt.

  1. Pay as much as you can on the smallest debt.
  2. Once the smallest loan has been repaid in full, you can move on towards the next one.
  3. Keep on following this same method by knocking off debts from the list and assigning the saved up money towards your list’s next debt.

If this seems too theoretical, consider it in an actual example as follows:

Imagine you have a house bill of some sort amounting  $1,500 to be paid with the option to cover the fees without any interest. On the other hand, you have two credit card bills of $4,000 and $3,000. So, by applying the snowball method, your list would have to go something like this: house bill ($1,500), credit card bill ($3,000), and credit card bill ($4,000). Although the house bill is an interest-free loan and the credit card bills will hold interest, it is better to start from the smaller one. This allows early victory and better time and cash allocation to tackle the more significant dues.

How Does The Debt Snowball Work?

As the simple steps mentioned above, the debt snowball is proven relatively easy and quick to set upon your debt repayment schedule. The key tactics to get the above steps to work is as follows:

Start By Getting Organized

This goes without saying to all debt repayment methods. The organization is key to successful debt repayment. The debt snowball method pushes you to organize the loan from the smallest to the biggest, thus incurring a specific organization system without noticing. To do so, one must focus only on balance and exclude the interest rates, monthly payments amount, and other loan terms.

Keep The Minimum

Just because you are focusing on finishing the smaller loan first, this does not mean to neglect the rest. Make sure you are meeting your minimum monthly payments for your other loan to avoid fees and penalties.

Pay Extra

While it is a relatively smaller loan amount, the immense amount of cash you allocate to it, the faster you will be done with it.

Keep The Routine Going

After you have accomplished your first task to cover the smallest loan, keep it going. Move on to the next little debt and make your way to the top.

Debt Snowball Calculator

If you are on the lookout for a reliable way to calculate your debt snowball method, it is advisable to rely on a snowball calculator’s power. You can enter the information of all your debts (without a mortgage), interest rates, and minimum payments. After doing so, you are free to set a budget to understand how much extra money you can allocate for each debt per month, more than just the bare minimum. That extra money is the cash you will be utilizing to eliminate your debts.

How To Know If Debt Snowball is Good For You?

Using a debt calculator, you can hop from one method to the next to determine which fits better to your current loan situation. Although the avalanche method may seem faster and cheaper at first, a slow and steady approach like the snowball method may cater to your needs better. If the debt snowball method provides you with constant achievement and reinforcement to keep you going, it is worth the time and effort to get your financial status back where it belongs.

Advantages Of The Debt Snowball Method

Although the ultimate aim of ridding debt is advantageous, the debt snowball method offers extra boosts to improve customer satisfaction. So before jumping in a debt repayment solution it is best to revise the pros and cons of the debt snowball.

The first advantage is the apparent psychiatric uplift from knocking off one debt at a time from your list.

This method is particularly suitable for consumers as it helps knock off many debts with outstanding balances and fast. It also helps eliminate the small pesky loans at first, for borrowers to have a better financial standing to tackle the more significant and more challenging debts.

Another advantage of the method is its simplicity. Borrowers do not have to undergo complicated calculations with interest rates and formulas to begin their debt repayment plan. This is an excellent benefit aside from allowing you to take on one debt at a time.

Disadvantages Of The Debt Snowball Method

For every simple method, you will be met with disadvantages to make you think twice.

The snowball method’s most significant disadvantage is that borrowers will have to repay more interest over time than if other debt repayment methods are implied. Since it focuses primarily on paying off the debts with smaller amounts, your more extensive and higher interest debts will last.

The snowball method relied on the borrower’s self-guidance and discipline to allocate freed-up cash to pay off smaller debts. Diverging from the set method may result in much more harm than realized.

If your primary concern is wasting too much money employing the debt snowball method, it may be wise to look closely at your credit card annual percentage rates and loan interest rates. If you find that the debt snowball technique may cost you more in the long run, maybe this strategy is not the best fit for you. For considerably high-interest rate loans, the avalanche method is a more efficient method that focuses on higher interest balances first.


As per every existing debt repayment method, the debt snowball technique is just another system catering to a borrower’s specific situations. Be sure that this method works best with your current financial status and will not throw your budget off the window. Conduct the necessary research and calculations to ensure that you will not be paying extra penalties, fees, or interest, even though this method provides faster debt relief. 

Essential Tips for borrowers

More articles