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

Lantern Comp Guide: What Is the Debt Snowball Method? How Does It Work?
Austin Kilham
Austin KilhamUpdated September 6, 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. Below we highlight 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 a 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.A common way to use the debt snowball method is to pay more than the minimum amount due on your smallest debt, while still paying the minimum amount due on the rest of your debts.Once the smallest debt is paid off, you can begin making extra payments toward your next smallest balance. As before, you would continue paying the minimum amount due on larger balances while making extra payments toward your smallest balance. That’s how the snowball debt method works each month until you become debt-free.The snowball method is generally a long-term strategy that plays out over time. Research shows the debt snowball method can uplift debtors with a morale boost. Paying off a debt quickly can affect consumer psychology by motivating the consumer to pay down other balances. The initial success can promote good payment habits in debt management, according to published findings.

How Does the Debt Snowball Work? 

Here’s how the debt snowball works in six simple steps:
  1. Figure out your monthly budget and determine how much you can allocate to debts.
  2. List all of your debts without taking interest rates into consideration.
  3. Arrange your debts from smallest to largest.
  4. Make the minimum payment on each debt.
  5. After paying for the essentials, make an extra payment on the smallest debt using any leftover funds from your budget.
  6. Repeat this process until the smallest debt is paid off (then move to next-smallest debt).
With the snowball method, 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. That’s how the debt snowball method works.

Example of a Debt Snowball

If your smallest debt is a $500 balance that requires a $20 minimum monthly payment, you may pay that debt off faster by using the snowball method.For example, you could make the $20 minimum payment and an additional $50 payment each month until paying off the debt in full as demonstrated in the table below:
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
Once your smallest debt is paid off, you may continue building your debt snowball by making an extra payment toward your next smallest debt.

Pros and Cons of 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.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 debtsMaking minimum payments on some balances may increase the amount of time it takes to become debt-free
Recommended: Can You Use a Personal Loan to Pay Down Credit Card Debt?

Tips for Using the Debt Snowball Method

Here are some debt snowball tips to consider:

Understand Debt Management

It may be helpful to understand debt management, because the snowball method is a method for managing debt. Using the snowball method helps ensure that you make required monthly payments on all of your credit accounts and extra payments on your smallest balance.

Aim High To Become Debt-Free

If you’re wondering how to get out of debt, the snowball method is a long-term strategy to becoming debt-free. Making extra payments on your smallest balance can help you pay down that balance faster.

Increase Your Extra Payment Amount

Budgeting more of your income toward extra payments on debt can help you pay off your smallest debts faster. Reducing your spending on nonessential items and increasing your income with a side hustle may enable you to make larger extra payments on your smallest debt.

Alternatives to the Debt Snowball

Here are some alternatives to the debt snowball:

Debt Avalanche

Debt avalanche is a debt repayment method that focuses on paying off the balance 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.

Debt Snowflakes

Another repayment method you may consider is 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.

Debt Management Plan

A debt management plan can help you repay your debts, manage your monthly payments, and potentially reduce your interest costs. You may enroll in a debt management plan with the assistance of an approved credit counseling agency.Beware that some vendors may not be legitimate credit counselors. The U.S. Department of Justice maintains a list of approved credit counseling agencies by state. Most of the reputable credit counseling agencies are nonprofit organizations that offer services at local offices, online, or on the phone, according to the Federal Trade Commission.Credit counseling may offer financial education and tips on budgeting. You may be able to find nonprofit credit counseling agencies through a university, military base, credit union, or housing authority.

Debt Consolidation

Debt consolidation is another debt management option you may consider. You may consolidate debt with a debt consolidation loan that’s large enough to pay off your older debts. This can simplify repayment since you’ll only have one monthly payment to make instead of many.A debt consolidation loan may be right for you if it reduces your interest rate charges. A debt consolidation loan is typically a personal loan that has to be repaid over a set term with interest.Another debt consolidation option is using a balance transfer credit card to pay off other creditors. A balance transfer may be right for you if it comes with an introductory 0% annual percentage rate that helps you meet your goals.

Personal Loan vs Balance Transfer

A personal loan or balance transfer can help you consolidate credit card debt, but here are some points to consider:
  • If you’re wondering whether you should use a debt consolidation loan or personal loan, you should know that debt consolidation loans are a type of personal loan
  • You may use online personal loans for almost any purpose, while debt consolidation loans are specifically designed to help you pay off debt
  • Some lenders may charge an origination fee on debt consolidation loans, and credit card issuers may charge balance transfer fees
Recommended: What Are Personal Loans & Their Uses?

The Takeaway

In the end, the best method to use for debt repayment is the one you can stick with. 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.If you’re exploring personal loan options for debt repayment, Lantern by SoFi could 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. Lantern can help you compare rates and find loan offers in minutes.

Frequently Asked Questions

What is the debt snowball?
How does the debt snowball work?
What are some alternatives to the debt snowball method?

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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