The Debt Snowball Method Explained

by Jackie Beck

Ready to get out of debt for good? The debt snowball method can help you do exactly that, because it’s both highly motivating and effective.

But before I tell you how the debt snowball method works, let’s talk about why it works — because that’s where the real magic lies.

Why the debt snowball method works

Being in debt usually means you didn’t want to wait to buy the things you wanted or needed, and so you used credit to get them right away. In other words, you’re not a fan of waiting around.

You’re probably not a fan of waiting around when it comes to getting out of debt either, so you may as well use that tendency for you.

The debt snowball method works because it starts you off on the right foot by quickly showing you that you can succeed, and then it keeps you motivated along the way. You won’t have to wait years before you see progress.

Fast results

If you’ve got a bunch of different things you owe varying amounts of money on — say, a thousand dollars here, or three thousand there — you’ll start off by making some quick progress. You’ll see results faster than you might imagine, and you’ll feel good about what you’re doing.

That means that instead of trying to get out of debt and then giving up, you’ll keep right on working at it because you’ll have proof that you can do it. You’ll go from feeling stressed out and hopeless to hopeful. The debt snowball method is highly motivating, because those small successes at first make you want to keep at it.

How to use the debt snowball method

To use the debt snowball method, you usually start out by organizing your debts from the lowest balance to the highest balance, regardless of interest rate. (If the thought of doing that makes you want to explode because it doesn’t make sense math-wise, read “Am I bad at math too?”.)

You then pay as much as possible to the first one in your list. Basically, you chuck as much as you can scrounge up or earn toward that first creditor to get it GONE. At the same time, you make only minimum payments to all of your other creditors. Don’t try to send an extra $20 to each one. If you want to send in extra money, send it ALL to your main target. Pummel it with those snowballs.

Once your very first credit card (or whatever’s first on your list) is paid off, you’ll feel really good. You’ll also end up with even more money to send to the next one — because you’ll no longer owe anything on the first one you targeted.

Over time, you begin to chuck more and more money toward each remaining target. In other words, the amount of money you’ve got available to send in grows and grows, until eventually it becomes a debt avalanche. (If you’re using the Pay Off Debt snowball app, you can easily see exactly how that works.)

You just really get on a roll, annihilating your debts by using the debt snowball method.

Highly motivating

It’s motivating — especially if you organize things in the traditional lowest-balance-first order — because you quickly make progress instead of feeling like you’ll never get anywhere. And when you see progress, you keep going. So not only does the repayment itself snowball, your excitement and commitment snowballs too, leading to still more progress.

It’s a great way to get out of debt.

Want to stay motivated while using the debt snowball method? Pay Off Debt app can help! Click here to download it from iTunes.

Posted in Debt Snowball Method | 12 comments.

12 Responses to The Debt Snowball Method Explained

  1. Lindsay says:

    I’m using the snowball method and I just paid off two of my credit cards in the past year. One more to go and then I am DEBT FREE! I can say it IS exhilarating!

  2. Jackie says:

    That’s awesome!

  3. Debt Donkey says:

    Good explanation! I’m using this method and it really does work. It keeps you motivated. Best wishes….

  4. James Hussey says:

    Definitely a good principle I learned from Dave Ramsey and Larry Burkett (sp?). There are some interesting ideas on this, however, from blogs like IWillTeachYouToBeRich.com and Tim Ferriss’s 4 Hour Workweek book/blog.

    Have you had a chance to peruse their views?

    I’m assuming here you’ve read the “Total Money Makeover,” and not to knock Dave Ramsey but it’s interesting nonetheless to see some opposing views and why they disagree (although I’m still living the Dave Ramsey way myself, almost got out of debt then some life happened).

    • Jackie says:

      I’m on the email list for iwillteachyoutoberich, and really enjoyed the 4-Hour Workweek book. I’ve also read Total Money Makeover, but not until I was already out of debt except for our house. I’m curious why you view the 4-Hour Workweek as an opposing view though? I don’t recall that having much to do with debt one way or the other.

  5. John Turnkey says:

    This is really bad advice.

    It is a very basic mathematical exercise to show that the debt snowball method results in you paying a lot more in interest fees than you would pay if you put your attention on highest interest rate debts first. The argument here is that it is a psychological benefit. Well, sorry but I think paying off all debt much sooner is a much stronger psychological benefit than snake-oil repayment methods that take much longer for people to complete because they end up accruing much more interest. Once again, this is very basic mathematics and I suggest the author of this page learns some.

    • Jackie says:

      It’s not bad advice to explain how a method that has helped thousands of people get out of debt works. I’ll address your objection in a post soon, since it’s a common objection, but for now just note that I said “To use the debt snowball method, you usually start out by organizing your debts from the lowest balance to the highest balance.” (Emphasis added.) The key point to the snowball is that you chuck as much as possible toward the first debt in your list, while making minimum payments on the rest. That debt can be any debt. Judging from Dave Ramsey’s track record though, I’d say more people are motivated by quick progress — which happens when you put the smallest debt first. Not that many people are likely to stick with things they don’t see progress on.

      • Chris says:

        The fact that it has worked for many people doesn’t mean that there isn’t another method that would have worked better, or would have worked for more people.

        You should ALWAYS pay the highest interest rate debt down first. Always! If you want something to motivate you, add up all the numbers (addition is not that hard), and watch it start shrinking more quickly than it has every shrunk, and in fact faster than any other way that it will shrink. Especially if you are on a tight budget, this will keep you the most salient during the debt pay down period, and will keep you from the least amount of trouble if emergencies come up and you start to not be able to pay it down as quickly later on. It will reduce your minimum payments by the most the quickest, giving you more head room, and you will pay off the total earlier than any other way. This is simply a fact.

        If the only counter to that is “but, motivation!”, then that is like encouraging a fad diet over regular boring and patience requiring exercise. And if you really need motivation, again, add up the total debt numbers and watch them drop.

        • Alix says:

          Chris and John, you are both completely missing the point and your arguments are flawed. Of course, it makes more rational sense to pay off higher-interest debt first. But paying off debt isn’t a math problem, it is changing ingrained behavior. When it comes to changing behavior, motivation is not only the most important factor, it is the only important factor. And for some reason, reducing the number of creditors in the Debt Snowball plan is more effective at changing behavior than reducing the overall debt.

          I could argue that the best way to pay off debt is to take on three jobs, sell everything of value, downsize your house and eat ramen until all of the debt is paid (higher-interest debt first). But how many people would follow that plan? It’s not effective at changing behavior, which makes it an ineffective strategy.

          If everything were as simple as constructing the most rational system, we would all be debt-free millionaires with six-packs. Just look at all of the comments on the message boards about this topic. The Debt Snowball plan creates a keystone habit, which in turn, creates other positive habits and behaviors that help people eliminate their debt more quickly. Both of you have eliminated the most important variables out of the equation.

  6. Patty says:

    We are small business owners living almost a debt free life and we have Dave Ramsey to thank for that! Still plugging away at debt, but it’s getting smaller and easier to see the “finish line”.