If tackling your debt feels daunting, consider the “debt snowball” method. This popular debt-payoff strategy is engineered to give you wins early in the process, which can make it easier to stay motivated.
Similar to the “debt avalanche” method, the debt snowball involves strategically using extra cash to shave years off your debt repayment and save potentially thousands of dollars on interest compared with making the minimum payment. While other methods may save the average borrower a bit more money, the snowball method is touted by TikTok stars and financial planners alike because it feels good—and works.
“Financial success is often more mind-set than math,” says Brent Weiss, a certified financial planner and head of financial wellness at Facet, a virtual financial planning firm. “The debt snowball method is so successful because it helps people create small wins, and those small wins build on one another to create momentum and confidence.”
Is the snowball method right for you? Here’s what you need to know.
What is the snowball method of paying off debt?
The debt snowball method is a strategy to pay off your debt fast, which targets your smallest debts first. To start, you’ll make the minimum-monthly payment on each of your accounts. Then, you’ll allocate any extra cash toward the lowest balance account.
As an example, say you have three debts:
- A credit card with a $4,000 balance
- Another credit card with a $10,00 balance
- A personal loan with a $11,000 balance
In this case, you would put extra money toward the credit card with a $4,000 balance, since it’s the smallest.
Once you’ve paid off that card, you’ll take the total payment—including the extra amount—and add it to the minimum payment on your next-lowest balance account. In this example, that would be the second credit card. You’ll keep doing this with each debt, creating a snowball effect as you add each payment together until all of your debt has been eliminated.
How much time and money can you save with the debt avalanche method?
The details of your loans—your current balances, interest rates and loan terms, as well as how much extra you can pay—will dictate how much you can save with the debt snowball method, as well as how fast the process goes.
Before you start, use an online calculator to see how different methods would play out for you. (Undebt.it and unbury.me are solid options.) No matter how you approach your debt, it’s important to map out a plan and stick to it if you want to see results.
Continuing the example above, you have two credit cards and a personal loan to pay off:
| Debt | Current balance | Interest rate | Minimum monthly payment | Time left |
|---|---|---|---|---|
| Credit card #1 | $4,000 | 18% | $80 | 7 years, 10 months |
| Credit card #2 | $10,000 | 24% | $250 | 6 years, 10 months |
| Personal loan | $11,000 | 10% | $320 | 3 years, 6 months |
In total, your minimum-monthly payments amount to $650, but let’s assume that you can afford to pay an extra $150 every month.
You’ll start with the credit card with the $4,000 balance, adding to the minimum payment for a total of $230. If you stick with it, you’ll pay off the card in 1 year and 9 months —about 6 years early. Once that’s paid off, you’ll add the $230 to the next card for a total payment of $480 until you zero out its balance too.
Because of its fixed repayment term, you’ll end up paying off your personal loan a couple of months before you pay off the second credit card.
With the debt snowball approach, you’ll pay off all three debts in just 41 months, more than 3½ years sooner than you would making just the minimum payments. You’ll also save nearly $7,000 in interest.
“As each debt is knocked out, most people begin to see the light at the end of the tunnel,” says James Lambridis, founder of DebtMD, a company that connects consumers with a variety of debt solutions. They “become more focused and determined to pay off their larger debts as they move along in the debt snowball approach.”
Is this method right for you?
In general, the debt-free snowball method could be a good fit for you if:
- You have debt across several credit cards and loans
- You can afford to make extra payments without sacrificing other important obligations
- You’ll be motivated by some quick wins
- You don’t plan to take on more debt or use your credit cards while paying them off
If you aren’t sure whether the snowball method is the right approach for you, you may consider other debt repayment strategies, including the debt avalanche method, a debt consolidation loan or a balance transfer credit card.
Debt avalanche method
The debt avalanche method works similarly to the snowball method, except instead of targeting your lowest balance first, you put extra money toward the account with the highest interest rate. You’ll especially want to consider this method if you have debts with extremely different rates. Lowering the balance on a credit card with a 20% rate will always save you more than putting extra toward a student loan with a 5% interest rate.
“If you have large debts with high interest rates, prioritizing those first with the avalanche method may help you save money on interest paid,” says Michael Collins, founder and CEO of Wincap Financial, a wealth management firm. If your debt is manageable, however, the psychological benefits of the snowball method may be preferable, he adds.
Debt consolidation loan
If you have a good credit score, meaning a FICO credit score of 670 or higher, you may consider using a personal loan to consolidate your high-interest debt. Personal loans typically charge lower interest rates than credit cards. Having a set repayment schedule can help end the cycle of making just the minimum payment on your cards.
Before you accept a consolidation loan, however, make sure you can afford the monthly payment. “Debt consolidation can be a great choice if it helps you reduce your interest rate but it creates one larger balance that can often feel insurmountable to many people,” says Weiss.
Balance transfer credit card
Balance transfer credit cards typically offer a 0% APR promotion when you open an account and transfer a balance from another credit card. Depending on the card, you may have 12 to 21 months to pay off your balance interest-free. Once the promotional period expires, any remaining balance will be subject to the card’s regular APR. (For credit cards the average APR is 20.92%, according to data from the Federal Reserve for the first quarter of 2023.)
You’ll typically be subject to an upfront fee of 3% to 5% of your transferred balance, but the potential interest savings can still make it worth your while.
Keep in mind, a balance transfer card doesn’t change your habits, so if you think you might continue making minimum payments or rack up more debt on the original cards, it might not be a good option for you.
Credit counseling
If you’re struggling to keep up with your minimum payments, a credit counselor could help you figure out how to better manage your budget and obligations. Nonprofit counseling agencies typically offer free consultations.
In some cases, a credit counselor may suggest a debt management plan. With this option, the credit counselor can negotiate a lower monthly payment and interest rate and get you on an affordable, three-to-five-year payment plan. You’ll typically need to pay a modest setup fee and ongoing monthly fees throughout the repayment plan.
More money tips
- How to Use the Avalanche Method to Get Out of Debt
- Best Savings Account Rates
- We Tested 5 of the Best Budgeting Methods. Here’s What We Found
Meet the contributor
Ben Luthi
Ben Luthi is a contributor to Buy Side from WSJ.
