The debt snowball method of paying off debts in order from smallest to largest can help you rack up quick wins for motivation.
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Paying off debt can feel like an uphill battle, but the debt snowball method makes it possible to get out of debt faster. This simple yet effective strategy has helped countless people become debt-free. Here’s a step-by-step guide on how to use the debt snowball to pay off debt for good.
What is the Debt Snowball Method?
The debt snowball method, popularized by finance expert Dave Ramsey, is a debt payoff strategy where you pay off your debts in order from smallest to largest, regardless of interest rate.
The key steps are:
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List all your debts from smallest balance to largest,
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Make minimum payments on all debts except the smallest.
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Put as much extra money as possible towards the smallest debt until it’s fully paid off.
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Once the smallest debt is paid off, roll that payment amount into the next smallest debt.
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Repeat until all debts are paid off completely.
As you pay off each balance, the “snowball” effect kicks in. Your payment toward the next debt keeps getting bigger and bigger as you eliminate each balance. This helps you gain momentum and stay motivated as you plow through your debts.
Why the Debt Snowball Method Works
The debt snowball method works for several key reasons:
Quick Wins. By targeting your smallest debts first, you’ll knock out those balances quickly. Paying off your first debt fast gives you a sense of accomplishment and pushes you to keep going.
Increased Cash Flow. As you pay off each balance, you free up the money that was going toward that debt’s monthly payment. You then roll that amount into the next debt, accelerating how fast you can pay it off.
Focus. With the snowball method, you channel all your energy into one debt at a time until it’s gone. This focused approach prevents you from feeling overwhelmed.
Motivation. Nothing motivates like progress. With each debt you eliminate, you’ll gain momentum and be inspired to stick with your payoff plan until you’re debt-free.
How to Pay Off Debt Using the Snowball Method
If you want to use the snowball method to become debt-free, follow these steps:
Step 1: List Your Debts Smallest to Largest
Grab a pen and paper or open a spreadsheet. Write down all your debt accounts including credit cards, personal loans, student loans, auto loans and medical debts.
List the debts from smallest outstanding balance to largest, regardless of interest rate or loan term. This first debt will be your initial “snowball” target.
Step 2: Budget to Pay Minimums on All Debts
To start paying off debt, you need to free up cash flow. Look at your monthly budget and see where you can trim spending. Find ways to cut back on wants, reduce fixed costs if possible, and bring in extra income from side jobs.
Determine the minimum monthly payment due on each debt account. Be sure you can cover all the minimums with your monthly budget. If not, make adjustments until you have some “snowflaking” money left over.
Step 3: Attack the Smallest Debt with a Vengeance
Now it’s time to start rolling that snowball. Every extra dollar in your budget should go toward the smallest debt on your list.
Make the minimum payment on all debts except the smallest one. Throw everything you can at that first target debt until it’s completely paid off.
For example, if your smallest debt payment is $50 per month, try to put $200 or more toward it. The more you overpay, the faster it will disappear.
Step 4: Roll the Payment to the Next Smallest Debt
Once you’ve paid off the first debt, take the amount you were putting toward it and add it to the next smallest debt payment.
Let’s say your first debt payment was $50 per month. You managed to pay it off in two months by putting an extra $100 each month toward it.
Now you can take the $150 total that you were putting toward the first debt and add it to the minimum payment on the next smallest debt. Keep rolling payments over until each debt is knocked out.
Step 5: Repeat Until All Debts Are Paid Off
Follow steps 3 and 4, repeating the process of paying extra on the smallest debt while making minimums on the rest until each balance reaches zero.
Stay focused and keep working the plan. With each debt you eliminate, your payment snowball will pick up more momentum, speeding up your progress.
Stick with the snowball method until you have paid off your last debt. Then celebrate being 100% debt-free!
Snowball Method Tips & Tricks
Here are some additional pointers to help you get the most traction from your debt snowball:
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Automate payments toward your snowball debt so you don’t forget.
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Pick up a side gig like driving for Uber or freelancing to generate extra snowball cash.
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Sell stuff you don’t need to put more money toward debt payoff.
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Negotiate lower interest rates on large credit card balances.
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Split living expenses with a roommate to free up more money for debt payments.
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Celebrate each milestone and visualise eliminating the next debt.
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If you slip up, get right back on track. Don’t let setbacks derail your progress.
Stay Motivated to Reach Debt Freedom
Paying off debt takes consistency, determination and focus. But the debt snowball method makes it easier to stay on track by providing quick wins to keep you motivated.
Getting out of debt may require temporary sacrifices, but just imagine the freedom of being debt-free. Follow the snowball method to pay off debt fast and take control of your financial future.
You’ve got what it takes to become debt-free. Believe in your ability to overcome debt, and let the debt snowball momentum help you reach the finish line! With focus and perseverance, you can wipe out debt for good using this powerful payoff strategy.
When to use the debt snowball method
Consider the debt snowball method if small victories upfront — the satisfaction of seeing debts eliminated one by one — will keep you motivated.
The debt avalanche strategy is the opposite. It prioritizes paying off high-interest debt first. Debt avalanche might save you more on over time, but it also might take you may take longer to get the first debt wiped out.
If you need to front-load your payoff journey with early victories in order to stick with it, snowball is for you.
If your unsecured consumer debts — such as credit cards and personal loans — would take more than five years to pay, consider exploring debt relief options.
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Debt snowball: How it works in 5 steps
With the debt snowball method, you pay your smallest debt in full first, then roll the amount that was going toward that bill into paying off your next-smallest one.
The amount youre paying on that first debt keeps growing — much like rolling a snowball down a hill.
You are still making payments on all of your debts. Youre just putting putting extra money toward the account with the smallest balance. Here’s how to use the debt snowball method in five steps:
- Make a list of all of your debts and arrange them by balance, from smallest to largest. Disregard the interest rate on each.
- Pay the minimum monthly payment for every debt.
- Figure out how much money beyond minimums you can devote to reducing your debt. Every month, put that extra money toward your smallest debt — even if you are paying more interest on a different one.
- Once the smallest debt is repaid, take the entire amount you were paying toward it (monthly minimum, plus the additional money you were paying) and target the next-smallest debt.
- Keep knocking off debts and then diverting all the freed-up money toward the next debt in line.
Here’s how this method could look in real life: If you have a hospital bill for $1,200 that the hospital is allowing you to pay interest-free, and two credit card bills for $5,000 (at 22.9% interest) and $3,000 (at 15.9%), you’d pay more than the minimum on the hospital bill first.
That’s right — you’d pay the interest-free loan before you pay those that accrue interest.
Pay Off Debt Using the Debt Snowball
FAQ
How do you pay off debt snowball?
The debt snowball method is a debt repayment strategy that focuses on paying off the smallest debt balance first, regardless of interest rate. Once that debt is paid, the extra funds are rolled over and applied to the next smallest debt, and so on, building momentum like a snowball.
How long will it take to pay off $20,000 in credit card debt?
How to pay off $5000 in debt in 6 months?
What are the disadvantages of debt snowball?
By using the snowball method, you could end up paying more in interest over time vs. other methods like the debt avalanche, since this snowball approach prioritizes tackling debt with the lowest balances instead of the higher interest rates. It can also leave you carrying debt for longer than other methods.