How the Debt Snowball Method Works to Pay Off Debt

By Jackie Beck   Updated 09/15/2020 at 11:12 am

Pay off debt faster with a debt snowballWhat is the debt snowball method? Simply put, it’s a debt elimination plan where you pay off your debts in order from lowest to highest balance, regardless of interest rate.

For the vast majority of people, it’s the fastest way to get out of debt, hands down. According to Google’s Ngram viewer, the idea of the debt snowball first appeared in 1998. It was made popular by Dave Ramsey.

Why do so many people use this payoff method? Because it works. The debt snowball method can light a fire under you and rocket you forward like you wouldn’t believe. More importantly, it can help you stick with your plan until you can scream “I’m debt free!” with the best of them!

So if you’re ready to get out of debt for good, here’s exactly how to use the debt snowball method to make that happen. (Plus a little bit about why it works so well, how to decide if it’s right for you, and more.)

How the debt snowball method works

In short, it works like this: You put your debts in order from lowest balance to highest balance, without worrying about what their interest rates are. Then you focus on on knocking out one debt at a time — starting with the first debt in your list — until they are all gone.

You do this by sending minimum payments each month to every debt except the first debt in your list. The first one is your target. So you send the minimum payment plus extra each month to that one. Once that that debt is gone, you roll the amount you’d been sending to it over to the next debt in the list. That becomes the new target.

Over time, the amount of money you have available to send to repaying debt grows larger and larger. (Because you’re knocking out your debts and sticking with the plan.) The amount snowballs, in other words, and so you see faster progress. That’s the snowball effect at work.

Here’s a short video example of how it works:

And an example with numbers:

Susie Borrower has three debts totaling $23,429. They are a:

  • Car loan, $15,370 balance, 7% interest, $370 monthly payment
  • Credit card, $2370 balance, 21% interest, $71.10 monthly payment
  • Student loan, $5689 balance, 6.8% interest, $43.50 monthly payment

With the debt snowball method, she ignores the interest rates and puts them in order from smallest to largest. She makes minimum payments each month to all debts, and sends extra to the first debt. So her snowball looks like this to start with:

  1. Credit card, $2370 balance, paying $71.10 minimum payment + extra
  2. Student loan, $5689 balance, paying $43.50 minimum payment
  3. Car loan, $15,370 balance, paying $370 minimum payment

Once the credit card is paid off, she adds that debt’s $71.10 minimum payment (and the extra she’s been sending in) to the minimum payment of next debt in her list. So now she has:

  1. Student loan, $43.50 minimum payment turns into a $114.60 monthly payment + extra
  2. Car loan, $370 minimum payment

Once the student loan is paid off, she moves on to the next one. So she has:

  1. Car loan, $370 minimum payment turns into a $484.60 monthly payment + extra

What happens with and without a debt snowball for this example?

Let’s do without a debt snowball first. If Susie Borrower does NOT pay any extra to any of her debts, does not add to them, and just sticks to making minimum monthly payments, she’ll pay off her car loan first, then her credit card, and finally her student loan.

And it’s going to take her 20 years to do it WITHOUT the debt snowball.

She’ll also spend $31,643.21 in the end for the $23,429 worth of loans. (Because she pays more by using debt — in this case $8214.21 more in interest than if she’d paid cash.)

What happens with it?

By using debt snowball method instead, she’ll be out of debt MUCH faster, even if she doesn’t pay ANY extra.

As long as she doesn’t add to her debt, it will only take her 4 years and 11 months to be out of debt vs. 20 years. That’s a savings of more than 15 years and $3071.88. If she does send extra to her debt each month, she’ll get out even faster.

Plus of course, once all her debt is repaid, she’ll have an extra $484.60 every month for the next 15+ years to do anything she wants with. What could you do with the money you’re currently sending to debt?

(If you’re curious how I know all those times and amounts, it’s because I popped the example debts into my app, Pay Off Debt by Jackie Beck. It lets you play around with things and see how quickly you’ll have things paid off. I think it’s the best debt snowball app because it’s very accurate and motivating.)

Now let’s talk about why this method works. Because that’s where the magic lies.

Before we can do that, we need to talk about a little about what doesn’t work. You see, most people try to pay off debt by trying one or more of these ideas:

  • They send a little extra to each debt, but give up when they don’t see progress. (It IS really discouraging to send in extra to a credit card and have most of it go to interest.)
  • They try to solve a behavior problem with math, often by trying to pay off high interest, high balance debt first. Again, they give up when they don’t feel like they’re making a dent. (Unless you’re talking about payday loans or car title loans, usually interest is not the problem. It’s the symptom. Continued borrowing plus a lack of savings is the real problem.)
  • They move debt around using debt consolidation. Often, they end up going deeper into debt because they haven’t changed their habits AND because it feels like they paid off debt when they haven’t. They only rearranged it.
  • Or they finally pay off their car loan after many years of payments, and celebrate by buying a new car. Because they deserve a new car, and paying cash for a car feels impossible.

Using a debt snowball is a completely different approach, and it works because tackles both behavior and emotion. It quickly shows you that you can succeed, and then it keeps you motivated along the way.

When you use it, you’ll see faster results AND you’ll feel good about what you’re doing. It’s highly motivating, because seeing those small successes makes you want to keep at it.

Along the way, you’ll change both the way you think about debt and your habits.

But don’t just take my word for it.

Research bear this out

Kellogg School researchers David Gal and Blakeley B. McShane found that “consumers who tackle small balances first are likelier to eliminate their overall debt”.

And a study published in the Journal of Consumer Research suggests that “people are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest”.

Using a debt snowball is powerful, because instead of trying to get out of debt and 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 best part of doing it this way is this: As you make progress, you’ll end up with even more money on hand to send to debt. That’s 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 you’re making HUGE progress. Super fast.

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

It can cut years off your debt payment plan

So why does using the debt snowball method speed things up so much if you’ve got several debts? It’s simple. Instead of say, paying off a small credit card and freeing up fifty bucks a month to spend on something else — like dinner out each month — you keep sending that money to debt.

Basically, you stay focused on debt repayment, and you get it done.

When you keep chucking that money toward the next debt in your list instead of spending it or borrowing for something new, you’ll get out of debt faster. Sometimes literally years faster.

Is a debt snowball right for you?

The debt snowball method isn’t right for everyone. There are cases where it’s better to use a different way to pay off debt, and cases where it works really well.

Who does the debt snowball method work best for?

It works best for people who:

  • Have several debts in a variety of amounts
  • Have a strong reason for wanting to be debt free
  • Are able to send extra to debt above and beyond the minimum payments (usually by working extra and/or by cutting back on spending)

At the very least, you need to be able to make minimum payments to all your debts to start using one.

Note: If you are doing Dave Ramsey’s 7 baby steps, you’ll use the debt snowball method a matter of course.

If you only have your mortgage or one other large debt left, you can still use the motivation part of the snowball. You just mentally break it down into smaller parts, and then celebrate your progress as you hit milestones like $1000 repaid, $5000 repaid, $10,000 repaid, etc.

Who should consider another method?

If you aren’t able to make at least the minimum monthly payments to each of your debts right now, and/or if you have very high interest debt like payday loans or car title loans, you should wait to start a debt snowball for two reasons:

  1. You need to be current on your debts first so your progress isn’t lost to fees
  2. Debts with an APR of 300%-400% interest (common for payday loans) ARE worth getting out from as fast as you can, even if they aren’t the debts with the smallest balance.

If you have debts with interest rates of 300-400%, you probably should not pay off the smallest debt first. (Unless they ARE your smallest debts or you can pay the smallest ones off VERY quickly. In a week, for example.) In those cases, starting with a different debt repayment method for those high interest debts can be a good idea.

Alternatives to the debt snowball method

There are other ways to pay off debt. While I’m a huge fan of the debt snowball method (we accidentally used it to pay off over $147,000 in debt) there are cases where you may want to use other methods.

Some of the other choices are:

  • A debt avalanche
  • Debt management
  • Debt consolidation
  • Chapter 13 bankruptcy
  • Not paying it for a while while you save up money to repay part of it, and then negotiating with the lender to pay less than you owed at first in one lump sum. (This is stressful, will ruin your credit, and you may be sued for non-payment. Some companies charge you a fee to do this on your behalf.)
  • Refinancing (rearranging) debt to get a lower interest rate

That last one isn’t really paying it off. But for example if you have VERY high interest debt, replacing it with a loan from a credit union or family member could help make the amount easier to pay back.

If you are not sure what’s best for you, talk with a pro that’s familiar with your exact situation and area. If you’ve decided a debt snowball is right for you, read on to learn how to set it up.

Here are step-by-step directions on how to set up your own debt snowball

Setting yours up is pretty easy, and it shouldn’t take long. You just need to gather some details about what you owe. (Don’t let the thought of digging up info put you off, because you can start with what you know right now and fix it later if need be.)

Step one for creating a debt snowball:

Pick the debts you want to put in it and make a list of them.

You can include all of your debt if you like, or part of it. For example, many people include credit cards, student loans, personal loans, medical debt, car payments, and home equity loans in theirs, but you can include your mortgage too if you like. It’s up to you!

I suggest doing everything but the mortgage first, and then coming back to that after all your other debt is gone.

Write down this information for each one:

  • The name of the debt
  • How much you owe on it right now
  • The interest rate
  • The due date (so you know when to pay it by)
  • Your minimum monthly payment amount

For credit cards, your minimum monthly payment amount may change each month. But you can just use whatever it is right now for your snowball and not change that amount, as long as the minimum doesn’t go up. (And in theory it should not go up, as long as you stop using the cards.)

Step two: Organize the list

Put your debts in order from lowest balance to highest balance.

Step three: Stop borrowing

Yup, stop borrowing. That’s really the key to the whole thing, because you won’t get out of debt unless you commit to only using money you already have. That means no new debt. Even if it’s a great deal. It’s much greater deal to be free!

Step four: Make all the minimum payments

Make sure to make on-time (or early!) minimum payments to every debt in your list each month.

Step five: Pay extra to ONLY the first debt in your list

This is where the debt snowball starts. You want to focus all your efforts on the first debt in your list. So pay as much extra to it as you feel ok with, as often as you want, until it is gone. Mark any extra payments you send in as “principal only” so you can be sure they really do go to reduce the balance.

Note: Call your lender to see if they have any special things you need to do to make that happen, and to make sure you don’t have any prepayment penalties (Especially if you are paying off your house early.)

Step six: Avoid these common pitfalls

Only send in extra money to the first unpaid debt in your list (your current target.) Do not try to send an extra $20 to each one. Do not change around the order you pay them off in once you start. Pummel just that target with those extra payment snowballs, while you just pay minimums on the rest.

When you pay off a debt, do not spend that payment money on on something else. Use that money to reduce your debt faster and faster.

Make sure you really do stop borrowing, since that is key. Use my mantra of “I only spend money I already have” to help with that. That means money must be in your bank account AND not be earmarked for anything else before you spend it on anything.

Step seven: Repeat until done

Once the first debt in your snowball is gone, take the money you had been sending to it (meaning any extra payment amount + the minimum payment) and start sending that to the next one in your debt snowball. Repeat until you’re debt free!

Tools to help you use the debt snowball method

You can set yours up with just piece of paper or a computer document that you make your list on. You don’t really need anything special to set it up and make it work.

But if you want to use tools to help, you can use things like a debt tracker app, spreadsheet, paper worksheet, or a free debt snowball calculator like the one below.

(Note: If you’re looking for a debt snowball spreadsheet template for Google Sheets, I’m an affiliate for Tiller Money, who offers a free one. You can also use Undebt.it and export a spreadsheet from there.)

Free debt snowball calculator

To use the snowball calculator below, set “Start Payoff with” to Debt with the smallest balance, enter the desired information, and click Calculate.




Enjoy the payoff journey

Once your very first credit card (or whatever’s first on your list) is paid off, you’ll feel REALLY good. You’ll feel good even before that too, because you will see that your balance is going down.

Feeling good matters, because we like to keep doing things that make us feel good. That includes using a debt snowball.

So no matter what you choose, the important thing is to get started. Then keep going until you reach your goal, because debt freedom is a life-changing thing. It’s worth it for sure!

Your complete guide to crushing debt with a debt snowball

18 thoughts on “How the Debt Snowball Method Works to Pay Off Debt

  1. 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. 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).

    1. 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.

  3. 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.

    1. 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.

      1. 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.

      2. 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.

  4. 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”.

  5. Thank you for this information. We are starting on our Snowball method this month! 27k (ish) to pay off and here we go!

  6. I don’t think it matters which debt is paid off first, high interest or low interest. I has to be what is best for your motivation. The key is to pay off one debt at a time and keep going until it is all done. Just don’t get back in the cycle of reusing the credit cards that you have paid off otherwise you are back to where you started. (Been there, done that!)

    1. I very much agree with you, it doesn’t matter just pay one off, move on to the other. Ppl here are trying to discredit the idea. If you have or believe in something better go on with it.

  7. We are starting our debt snowball journey with a lot of hope and trepidation! 80K debt, wish us luck!

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