Debt Snowball Method: Your Complete Guide

Debt can quickly become overwhelming and seem impossible to eliminate. That’s why making a plan to manage debt from items like personal loans, credit cards, and medical bills helps accomplish your financial goals. Using the debt snowball method to pay down debts can give you small wins that lead to big payoffs.

Read on to learn more about why the debt snowball method works, how it compares to other debt relief options, and how a few practical steps can help you regain financial freedom.

What Is the Debt Snowball Method?

Debt snowball is a self-managed debt relief method used to pay balances in order of smallest to largest. Since repaying debt is usually a long process, quickly paying off small debts motivates consumers to keep working toward debt-free finances.

Depending on how much you can put aside to make payments each month, your debt payoff keeps “snowballing” into a bigger amount until you can eliminate big debts faster. Made popular by financial author and speaker Dave Ramsey, the debt snowball method is a DIY approach to debt relief that can yield big results if you commit to making consistent debt payments.

How Does the Debt Snowball Method Work?

To start the debt snowball method, list your debts from smallest to largest, regardless of interest rates. Next, determine how much you can put toward monthly debt repayments after paying your essential bills. The more you can cut costs and funnel income toward getting out of debt, the faster you’ll pay off your balances.

Begin paying off the smallest debt on your list, putting all your funds toward that account except what you need to make the minimum payments on your other debts. Once you pay off the smallest balance, you can put all your money plus the minimum payment you would have made on the previous account toward the next smallest debt.

Continue making payments this way until you eliminate every debt on your list. Congratulations! Now you’re debt-free!

Debt Snowball vs. Other Debt Relief Methods

Debt snowball may be the most effective option if you can stay motivated and manage your own debt. But before you start snowballing, you may want to consider other debt relief solutions to ensure you choose what’s best for your financial situation.

Here’s a look at some of the top debt relief options compared to the snowball method.

Snowball vs. Avalanche

Debt avalanche is the opposite strategy to the snowball method. In debt avalanche, you work to pay off debts in order of the highest interest rate to the lowest, whether the debt amount is large or small.

Since you’re paying off higher interest debt, the first payoff typically takes a long time, often up to 24 months. However, some consumers prefer using the avalanche method to save money in interest and knock out the biggest fees first. Both of these methods appeal to consumers who want to manage their own debt without paying fees to an organization.

Snowball vs. Debt Settlement

Debt settlement eliminates a portion of your debt for a reduced payoff amount. During a debt settlement, you negotiate with creditors to reduce your total balance, making it easier to pay off large debts quickly.

Unlike debt snowball, settlement focuses on paying large, unsecured debts instead of eliminating small balances one by one. Using this method, consumers pay a fee that’s up to 25% of their enrolled debts after the company successfully negotiates a reduced payment.

Settlement can save you up to 50% of your total debt before fees, but this method can also reduce your credit score during and after the settlement process.

Snowball vs. Debt Consolidation

While the snowball method eliminates debts one by one, consolidation eliminates all debts through a debt consolidation loan. Once you find a lender offering a low interest rate, you’ll take out a loan big enough to pay off each of your outstanding debts.

Consolidating debt leaves you with one monthly payment, which some consumers prefer instead of paying off multiple accounts. Debt consolidation can make monthly payments easier; however, it may not save you any money or help you pay off your new debt faster, especially if you don’t lock in a low interest rate on the loan.

Snowball vs. Debt Management

In debt management programs, consumers use a professional organization to manage monthly debt payments in exchange for a fee for each account. Once you enroll with a credit counseling agency or private debt management organization, you’ll start making a single monthly payment into a savings account. The organization then distributes your payments to each creditor, simplifying the repayment process.

For some consumers, debt management plans are more effective than debt snowball because credit counselors often negotiate lower interest payments or get late fees waived.

Debt Snowball Example

To get a better idea of how the debt snowball method works, here’s a hypothetical plan for paying off debt:

Greg decides to start eliminating his debts using the snowball method. He cuts some extra spending and determines he can pay $800 a month toward his debts after using his income to meet other expenses.

First, Greg pays off the medical bill in full while continuing the minimum payments on his personal loan and credit card. Now, he can pay $750 per month toward his personal loan after paying the minimum balance of $50 on his credit card.

Following this plan, his personal loan is paid off after seven months. Without any minimum payments, Greg can now put $850 a month toward the $7,500 in credit card debt, snowballing his debt payoff and ending the debt in about nine months.

5 Tips To Make Debt Snowball Work

Here are some top strategies to make the most of a debt snowball plan:

1. Save More Money

The more money you can funnel toward debt repayment, the more effective debt snowball becomes. Start by saving more of your income by limiting unnecessary spending. Make choices like eating out less, shopping sales, and delaying big purchases.

Cut essential expenses where you can by comparing rates for insurance and services like phone and internet. Consider starting a side hustle to monetize your talents and hobbies or finding part-time or seasonal work.

2. Map Out Your Plan

Committing to a debt snowball plan becomes more manageable if you outline clear goals for your financial success. Write or create a digital outline of each debt you want to conquer, including the total balance, any interest or fees associated with the account, and how much you plan to pay each month. Update the plan whenever you pay off a debt, but keep a record of what you eliminate to track your progress and stay motivated.

3. Apply It To the Right Debt

The debt snowball method works best for unsecured debts and small secured debts that are easily paid off in a short time. That’s why debt snowball isn’t typically used for mortgages, which can be paid at a low interest rate over many years. Debt snowball can work to effectively clear debts from credit cards, medical bills, personal loans, and car loans.

4. Stay Motivated

Review your financial goals regularly to stay on track for success. Focus on why you’re trying to pay off debt and what you’ll do with the extra once you’re debt-free. Stay educated on financial topics that teach you to be a savvy consumer. Once you get that snowball rolling, watching your debt repayments increase can be the best motivator.

5. Celebrate Success

Acknowledge a win each time you pay off a small debt. Find a way to celebrate that boosts your confidence without spending too much of your hard-earned income. Share your progress and success with friends and family. Remember what it feels like to lighten your debt burden so you stay committed to your plan. You can even try what Ramsey calls the “debt-free scream” and shout to the world what you’ve done.

Get Debt Relief Help

Even after snowballing small balances, you may find big, high-interest debts like credit cards harder to manage. Partnering with a debt relief organization like TurboDebt can help you overcome large balances faster.

With thousands of 5-star reviews across Trustpilot and Google, TurboDebt is a proven partner for eliminating debts.

It only takes a few minutes to find out if you qualify for our debt relief program. Contact us today to start your journey toward a debt-free life.