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What Is the Debt Snowball Method? How Does It Work?

What Is the Debt Snowball method? How Does It Work?
Austin Kilham
Austin KilhamUpdated January 3, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Juggling a number of debts can be overwhelming. A debt repayment strategy, such as the debt snowball method, could help you manage your debt and potentially pay it off faster. Here’s how to use the debt snowball, the pros and cons of this strategy, and some alternative debt repayment methods you may want to consider instead.  

Debt Snowball Method, Explained

What is debt snowball? It’s a repayment strategy that focuses on paying off your smallest debts first. The idea is that you repay your smallest debts quickly, and those successes could build your confidence and give you motivation to tackle your larger debts. 

How Does the Debt Snowball Work? 

To use the snowball method, your first step is to make a list of your debts, excluding your mortgage, from the smallest to largest balance. You don’t take the interest rate into consideration when using this debt payoff method. Next, look at your budget to make sure that you have enough money to make the minimum payment on all of your debts except the smallest one. For that smallest debt, you’ll put as much cash as you can comfortably afford toward its payments. Figure out what your budget will allow.Then start making payments. Each month, pay the minimum amount due on each debt but the smallest one. Use the extra money you’ve allotted to pay off your smallest debt. Once that debt is paid off, target the next smallest debt and put the extra money toward that one until it’s paid off, while making minimum payments on all your other debts. Repeat this process until all the debts on your list are paid off. You’ll notice that as each debt is paid, you’ll accumulate more and more money to put toward paying down the next debt, like a snowball picks up snow as you roll it. 

Example of a Debt Snowball

You may be wondering exactly how to debt snowball. A debt snowball plan for someone with $50 extra dollars a month to devote to paying down their debt might look like this as they begin the snowball method: 
DebtAmount owedMinimum paymentMonthly payment
Debt 1$500$20$20 + $50 extra
Debt 2$650$25$25
Debt 3$900$35$35
Debt 4$1,200$40$40
After they pay off the first debt, the person will have the $20 plus $50—or $70 extra dollars to use to pay off the second debt in addition to the $25 they were already paying. As a result, they’ll have $95 dollars a month to put toward their second debt, which may help them pay it off faster. Once the second debt is paid, they’ll have $130 to devote to debt number three. And when that’s paid off, they’ll have $170 to pay toward the final debt. 

Pros of Using the Debt Snowball

One of the main advantages of using the debt snowball method is the psychological boost you may get from seeing the smallest debts crossed off your list relatively quickly. This could help you stay engaged and motivated to continue paying off the rest of them. The debt snowball also lets you focus on one debt at a time rather than trying to tackle all of them at once. That can potentially reduce stress. Plus, you may get the satisfaction of reducing the number of bills you owe.

Cons of Using the Debt Snowball

A prime disadvantage of the snowball method is that your smallest debt may not be your costliest or highest interest debt. Because of that, you may pay more in interest over time than if you were to use another debt repayment method, and the entire process may take longer as a result.
Pros of Debt SnowballCons of Debt Snowball
May reduce stress by allowing you to focus on one debt at a timeDoesn’t focus on the most expensive debt first, so it can end up costing more in the long term
May provide a motivational boost through relatively quick payoff of smallest debtsAs a result of paying higher interest rates longer, it may take longer to finish paying off all debts 
Recommended: Paying Down Debt: Can You Use a Personal Loan to Pay Down Credit Card Debt?

Alternatives to the Debt Snowball

Another debt repayment method is the debt avalanche. This method focuses on paying off the debt with the highest interest rate first. This may not be the largest debt you have, but it is the debt that’s costing you the most money to maintain. To use the avalanche method, list your debts from the highest to the lowest interest rate. Budget to pay extra for the debt with the highest interest rate and the minimum on your other debts. Once you’ve paid off the debt with the highest interest rate, you’ll put the extra amount toward paying off the debt with the next highest interest rate, and so on. Because you’re tackling your most expensive loans first, you may end up saving money using this method instead of the snowball method. However, the debt may take longer to pay off with the avalanche method, which could mean that you won’t get the psychological boost and motivation you might with the snowball method.  There is also a repayment method called the debt snowflake method. This involves putting small savings toward your debt. Those micro savings could be such things as the $10 you find in the pocket of your jeans, or the extra money you make by doing occasional pet sitting on the weekends. You use those small sums to help pay off your debt. It will likely take a long time to repay your debt this way, but you can also combine the snowflake with either the debt snowball or debt avalanche method.

Consolidation Loans vs. Debt Snowball Method

Loans for debt consolidation are another tool to help manage and streamline debt. With this method, you take out one loan that’s large enough to pay off your debt. This can simplify repayment since you’ll only have one monthly payment to make instead of many. The new consolidation loan may have a lower interest rate than your other debt — especially if you have high interest credit card debt — which can save you money over the long term. There are advantages and disadvantages to both methods, so it might help to do a side-by-side comparison:
Consolidation LoanDebt Snowball
By consolidating all your debt, you only need to make one monthly paymentPsychological boost for paying off small debts quickly
May have a lower interest rate than your other debt such as credit cardsMay motivate you to continue paying off your debt
If you get a longer loan term, it could cost you more to pay off your debt Requires extra cash to put toward highest balance debt each month
You may have to pay fees, such as an origination feeDoesn’t focus on the most expensive debt first, which could cost you more in interest
If you’re wondering whether you should use a debt consolidation loan or personal loan, you should know that debt consolidation loan is actually a type of personal loan. The key difference is that personal loans can be used for almost any purpose, while debt consolidation loans are specifically designed to help you pay off debt. In some cases, the lender might pay off your loan directly with a debt consolidation loan. With a personal loan, you get one lump sum to use as you wish. You pay off both types of loans in monthly installments with interest. There are also ways to consolidate your credit card debt that you may want to explore.Recommended: 10 Possible Benefits of Obtaining Personal Loans

The Takeaway

In the end, the best method to use for debt repayment is the one you can stick to.  The debt snowball could be an effective method for you if the psychological boost you get from paying off each small debt will keep you motivated throughout the repayment process. The debt avalanche could work if saving on interest is your prime concern. Or if you qualify for a personal loan with a low interest rate, consolidating your debt might be the option you choose to streamline your payments. If you’re exploring personal loan options for debt repayment, Lantern by SoFi can make the process faster and easier. In our online marketplace, you can fill out one application and compare the interest rates and terms on loans from multiple lenders to help find the best fit for your financial needs. Compare loan rates and terms with Lantern.  

Frequently Asked Questions

What is the debt snowball?
How does the debt snowball work?
What are some alternatives to the debt snowball method?
Photo credit: iStock/Inna Kot

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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