You may have heard about the debt snowball method, but be unfamiliar with how it works and why it may be right for your debt-repayment goals. Let’s dive into the fundamentals you need to know.

Debt-Reduction Basics

Before you reduce your debt, there are a few basics you should know about.

1. Stop adding new debt

If you’re trying to clear a path toward becoming debt-free, taking on new debt will sabotage your efforts. You can’t pay off a balance if you’re continuously adding to it, so be sure to spend within your means. Place limits on yourself and keep yourself in check by teaming up with a friend or consultant who can help hold you accountable.

2. Pay on time

Before dedicating added resources to pay off debt, it’s essential to ensure that you can continue making on-time payments for necessary expenses and existing priorities.

To cover your debt, make sure that: 1) your everyday living expenses are adequately covered; 2) additional money is available over and above what you typically spend, and 3) you won’t be breaking the bank while chipping away at what you owe. Prioritizing debt repayment is an important goal, but it’s also important to consider the restraints of your budget.

3. Pay more than the minimum

Paying more than the minimum balance due will almost always save you money in the long run. Remaining balances will most likely accrue interest, which can ultimately make a payment more expensive. Pay your bills on time and in full when possible. Being a responsible account holder can boost and maintain your credit record and show that you’re a trustworthy borrower.

What is the Debt Snowball Method?

When you’re carrying multiple debts at once, it can be hard to know how to prioritize repayments. The debt snowball method is a strategy that concentrates on eliminating debts with the lowest balances first.

To use the debt snowball method, make a list of your debts by the balance owed on each one, from lowest to highest.

While paying at least the minimum amount owed on all your outstanding debts, you’ll start by directing any extra money you can spare toward small debts. Then you’ll work your way up. Once you've paid off one balance, you’ll move on to the next obligation and repeat the process, like a snowball that starts small and gains momentum as it rolls downhill.

For example, let’s say you have an $800 medical bill with a monthly payment of $100, a $1,200 home repair expense that you’re paying $100 monthly on, a $2,000 credit card balance with a monthly minimum payment of $75, and a $3,000 car loan with a monthly payment of $125. To start the snowball:

  1. Put the medical bill at the top of your list, followed by the home repair, credit card and car loan balances.
  2. Devote all the extra funds — everything you have for the debt payment after making the monthly minimums — you have toward the $800 bill, which is the smallest balance. By doing so, you’ll get rid of that entire debt faster — adding a $100 bonus to your monthly budget.
  3. Once the medical bill is paid off in full, apply that surplus plus what you were paying each month on the medical bill (this is your snowball, and it’s getting bigger) to the home repair until it’s knocked out. Continue by targeting the next debt in line with your larger payment.

You can use a debt snowball calculator to input your own examples and see how it works for your situation.

Benefits of Using the Debt Snowball Method

Prioritizing debt repayment by balance, smallest to largest, frees up funds for other purposes and clears some outstanding balances in a relatively short time.

What’s more, the debt snowball approach will help you score some quick victories that can keep you motivated. In fact, research suggests that most people may be more successful in repaying debt by paying off their smallest amounts first. The bottom line? It’s encouraging to track your progress and cross balances off the list.

Drawbacks of Using the Debt Snowball Method

Using the debt snowball method means that you may end up paying more in the long run because you won’t be focusing on your more costly debts first.

Unlike the debt avalanche method, the snowball strategy doesn’t take into account the various interest charges you may be paying on certain outstanding debts, which can mean you’re ultimately paying more to borrow. Your largest debt balance, for instance, may be the one that costs the most in interest charges. And with the debt snowball method, that would be the balance you attack last.

When Debt Snowball May Be a Good Idea

There are two things that can make the debt snowball method more beneficial than other methods. First, if you like the idea of an easy-to-implement way to make quick progress on the number of debts you owe, the debt snowball delivers. Next, this method can also swiftly create some financial flexibility, improving your ability to handle new expenses that come your way.

Finding a Debt Reduction Tactic

It's important to find a debt repayment strategy that works for you and your finances, and the debt snowball is just one method to consider. Ultimately, you’ll want to create a plan that feels like a match so you can stay inspired to pay off what you owe. Your best choice may be a mix of math and motivation.

Want to learn about another type of debt-reduction strategy? Discover how the debt avalanche method tackles your most expensive debt upfront.