Two major schools of thought dominate the debt repayment sphere: debt snowball and debt avalanche.
One says pay off debts with the highest interest rate first. That’s the debt avalanche method.
The other says pay off your smallest balances first so you can enjoy quicker victories and build confidence. That’s called the debt snowball method. That’s what I’m talking about now.
What Is the Debt Snowball Method?
Pioneered by money guru Dave Ramsey, the debt snowball refers to paying off one credit card or loan balance at a time, starting with the smallest balance first. Perfect for instant gratification; not so good for interest long term.
Smart finance experts will tell you sitting on credit card debt with high interest is stupid. The longer it’s unpaid, the more it will cost you.
So why would you pay off smaller balances and let those interest mongers sit?
Because, dude, paying down debt is hard.
When you stare at your credit report and see a list of lenders and credit card companies staring back at you, it’s like that time you panicked during Red Rover in second grade, froze, wet your pants and ruined recess. (Oh, doesn’t everyone have that memory?)
It’s hard to take the first step. Especially when reaching your destination means a bully might clothesline you.
Why Use the Debt Snowball Method?
The debt snowball method helps you take the first step. And the next, and the one after that.
Wouldn’t Red Rover have been more pleasant if you’d gotten a few practice runs against a couple of the weakest kids in class before taking on the toughest? It’s kinda like that.
Pay down your smallest balance aggressively. Once it’s gone, you’re like, “Hey! I can do this.”
Then you focus on the next-smallest debt with more confidence. It’s paid off, and you’re like, “Oh my god, I’m a debt-slaying goddess.”
How to Use the Debt Snowball Method
To use the debt snowball method, start by listing all your debts. A spreadsheet is a good way to go, because it’s easy to sort. Think:
- Credit card debt.
- Student loans.
- Personal loans.
- Car loans.
- Mortgage.
- Unpaid medical bills.
- That stuff debt collectors are calling you about…
Then use that nifty “sort by column” feature to organize these from the smallest balance to the largest.
Each month, continue to make minimum required payments on all your debts, so you don’t incur late fees. Any extra money you can spare? Put it toward that debt with the smallest balance (at the top your spreadsheet list).
If you want help fitting your debt repayment into your budget, try a budgeting app. Dave Ramsey’s EveryDollar app includes a “debt” category, where you can list and rank your debts and track your progress toward paying them off.
Let’s try an example. Say you have:
- A Mastercard with a $7,000 balance and a $350 monthly payment.
- A Visa with a $2,000 balance and a $100 monthly payment.
- A car loan with an $8,000 balance and a $200 monthly payment.
- Student loans with a $10,000 balance and a $150 monthly payment.
- A total budget of $1,000 to put toward debt.
Your minimum payments add up to $800 a month, so budget for those first. Then you’ve got $200 extra. If you put it toward that Visa bill, you can pay that baby off in six and a half months and check it off your list.
Then you’re left with:
- A Mastercard with a $4,900 balance and a $245 monthly payment.
- A car loan with an $6,800 balance and a $200 monthly payment.
- Student loans with a $9,100 balance and a $150 monthly payment.
- A total budget of $1,000 to put toward debt.
That’s $595 in monthly minimums, and now you have $405 extra. (See how it snowballs?) Pay off that Mastercard, and you’ll free up another few hundred a month to pay toward your car loan, and then your student loans. Get it?
Months 1-6
Here’s how you’ll pay off the Visa in six and a half months:
| Debt Account | Balance | Monthly Minimum | You Pay |
|---|---|---|---|
| Visa | $2,000 | $100 | $300 |
| Mastercard | $7,000 | $350 | $350 |
| Car loan | $8,000 | $200 | $200 |
| Student loans | $10,000 | $150 | $150 |
Then you’ll pay off the Mastercard after another seven and a half months:
Months 7-14
| Debt Account | Balance | Monthly Minimum | You Pay |
|---|---|---|---|
| Mastercard | $4,900 | $245 | $650 |
| Car loan | $6,800 | $200 | $200 |
| Student loans | $9,100 | $150 | $150 |
Then you’ll pay off the car loan after six more months:
Months 8-20
| Debt Account | Balance | Monthly Minimum | You Pay |
|---|---|---|---|
| Car loan | $5,400 | $200 | $850 |
| Student loans | $8,050 | $150 | $150 |
And finally, you’ll pay off the student loans after another seven months — and be debt-free in a total of two years and three months!
Months 21-27
| Debt Account | Balance | Monthly Minimum | You Pay |
|---|---|---|---|
| Student loans | $7,150 | $150 | $1,000 |
Here’s a caveat to that example above: I didn’t include interest. (Did you catch that?)Debt Snowball Method: Is It the Best Way out of Debt?
That’s the kicker with the debt snowball method. As you focus on one debt and putter along with minimum payments on the rest, they’ll accrue interest. High interest rates plus high balances equals more debt.
Compared with the debt avalanche method — in which you’ll tackle your highest-interest debt first — a debt snowball could mean you’ll pay more over time and maybe take longer to be debt-free.
So, why do it? It’s about motivation.
If you tackle debt with the avalanche method, you might be paying on that high-interest stuff for a while before you can knock it off your list. It can feel like you’ll never be done paying off debt.
The snowball method lets you see results more quickly — your list of debts gets shorter. If you have trouble staying focused, those wins can be a huge boost to keep going.
Debt Payoff Charts
Need even more motivation to keep at it?
Use this fun trick to keep your debt-payoff goals top of mind and celebrate your progress paying it off: Create debt art.
You know those thermometers you see around town to measure an organization’s fundraiser? They help the organization track and celebrate its progress toward its goal.
Debt art is like that.
You can create artwork that measures your debt as you pay it off. It’s prettier than those giant thermometers, but still helps you focus on your goal.
It’s like adult coloring pages, but with a purpose.
You’ll start with an image for each of your debt accounts, where each section is assigned a payment value. Color in a section as you make payments.
When the image is colored in, check that debt off your list!
Feel free to get creative and create your own — but, in case that’s not your thing, we created some debt art you can download and print for free.
Dana Sitar is a writer and editor at The Penny Hoarder. Say hi and tell her a good joke on Twitter @danasitar.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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