Debt — this simple, four-letter word can spell out stress, anxiety, and a gnawing sense of panic for many Americans. If you’re carrying outstanding debt, including revolving credit card balances, student loans, and car payments, know that you’re not alone. 

According to Business Insider, the average debt an American owes is $104,215, spread across various loans, home equity lines of credit, credit card debt, and student loan debt.

If you want to stop adding to your balance and pay down your debt, know that you can do it. But first, you need a plan. There are many popular debt repayment strategies — it’s simply a matter of finding the one that works for you. If you’re someone who likes the feeling of gratification that comes with checking items off a list, the debt snowball method may be just the one.

Ready to settle up with lenders, stop shelling out your hard-earned money, and become debt-free? Here’s how the debt snowball method can help.

What is the debt snowball method?

If you’ve ever spent any time in a snowy locale, you’ve probably built a snowman or tossed a couple snowballs with friends. Think of that perfect snow that packs incredibly well — it’s not too wet, not too fluffy — it’s just right. When you roll it across the snowy ground, it gets bigger and bigger until you’ve got a veritable snow boulder. The continued motion accumulates more and more until you bring Frosty the Snowman to life. 

In personal finance, this same concept translates into debt reduction, which is where the term “debt snowball method” comes from. Instead of snow, you’ll use money and momentum to pay down your debts. 

Here’s how the debt snowball method works: 

While some debt repayment strategies take interest rate into account, this method does not. Instead, the focus is on continually crossing off accounts, moving from the smallest balance to the biggest.

  1. Meet your minimum payments on every open account
  2. Pay off your smallest debt first, paying extra when you can
  3. Once that debt is paid off, roll that monthly payment into your next smallest debt
  4. Keep repeating that method until every debt is paid off

Like a snowball rolling downhill, the debt snowball strategy is all about momentum. While you may pay more overall money on your highest interest rates (especially if your smaller balances have lower interest rates), people who pick this strategy feel that the sense of accomplishment of paying off each debt will keep them on track to repaying all their debts.

Debt snowball example

Let’s see what the debt snowball method looks like in action. Assume, as an example, that these are your debts:

  • Car Loan: $1,258 outstanding balance, $350 monthly payment, 5.16% APR
  • Credit Card: $5,235 outstanding balance, $200 monthly payment, 16.75% APR
  • Student Loan: $13,724 outstanding balance, $150 monthly payment, 12.3% APR

Using this approach to debt relief, you’d start by paying back the car loan first — it’s the lowest balance of the three. 

Next, you’d roll the $350 car payment over to the credit card debt, now paying $550 each month instead of the $200 minimum. 

Finally, when your credit card is paid off, you’d add that $550 to your student loan payments until all your debt melts away.

Remember, the goal is to start with small debts to check off that box and keep building up steam — then move onto your next smallest balance, and then the next. It may look like you’re painting a house with a toothbrush, at least in the beginning, but when you pay off a balance that’s been following you around, it feels really good. 

Advantages of the debt snowball method

There are quite a few approaches when it comes to tackling personal debt, and the debt snowball method works well for many people. 

Consider using this method if you want to:

  • Build momentum. Finances can be stressful — feeling like you’ve gotten a quick win can be extremely motivating and help you keep building momentum.
  • Keep it simple. Compared to other strategies, the debt snowball method is very straightforward, easy to use, and effective.
  • Avoid overspending on debt repayment. Starting with your smallest debt can help if you’re struggling month to month — you can roll over just part of that freed-up payment instead of all of it to get some extra breathing room in your budget. 
  • Create financial confidence. Paying off your debt is empowering — you can show yourself that you’re able to get back on track and not be defined by debt. 

Disadvantages of the debt snowball method

What works for someone else might not work for you, and it’s important to weigh both sides when it comes to deciding on a debt repayment plan. 

Consider avoiding this method if:

  • You want to pay less total interest. The biggest drawback of the debt snowball method is that it doesn’t take interest into account. While you’re paying off your smallest balances, your other accounts with higher APR rates are accruing interest — the debt avalanche method can be a better approach.
  • You don’t need the quick wins. Some people get frustrated with long-term plans — so if you need the quick wins of debt snowball method, that’s okay. Just know it might take longer to get debt-free, especially if you’re carrying a lot of debt.
  • You don’t have any small-balance debt. If you want to pay down your debt fast, you may want to start with your highest interest rate instead of your smallest balance, especially if the interest rates are very different but the balances are similar.

How to make a plan with the debt snowball method

If this system seems like a good fit for you, great! Let’s take a look at how it works.

Remember, this strategy is all about momentum and persistence. Keep chipping away and enjoy the feeling once you start checking off those outstanding balances.

1. Gather all your debt balances

You’ll need to start by listing out all the debts you’re carrying. Write down the loan balance for each of your individual accounts, such as:

  • Credit card accounts
  • Student loans
  • Auto loans
  • Personal loans 
  • Short-term consumer loans (Affirm/Sezzle/PayPal Credit)

2. Organize your balances

Then, organize your debt by outstanding balance — from your smallest debt to your largest. 

While you’re at it, list the minimum payment amount along with each remaining balance. The goal is to be aware of your financial situation and know exactly how much you owe at any given time.

Although it isn’t part of the debt snowball method, it’s a good idea to add the accounts’ APR % too. If your debt balances are all pretty similar, pay off the debt that has the highest interest rate first instead of the one with the smallest balance.

3. Create a budget

If you’re trying to pay off your debt, creating a budget for your debt pay-down strategy can really help. You’re still going to have obligations like housing costs, groceries, and utility bills to pay every month, so you need to know how much extra money you can afford to spend on debt repayment. 

There are plenty of options — zero-based budgeting, the 50/30/20 method, the 10/20. Find one that works for you. The sweet spot is a budget that lets you cover your bills and save money while paying as much as you can on your outstanding debt. 

4. Start making payments

Once you’ve crunched the numbers and decided how much of your income you can allocate toward a debt repayment method, you’re going to (drumroll, please…) start paying off your debt! 

Refer to step 2 and find your smallest debt (or the one with the highest interest rate if you’d rather), and pay as much as you can while simultaneously paying the minimum monthly payments on every other open account. 

5. Keep it up!

It may feel at first like you’re trying to travel from LA to Tokyo in a rowboat across the Pacific, but once you start hitting a $0 balance across your accounts, it’s going to feel awesome. The goal, as always, is momentum. You can roll up those monthly payments and watch them get bigger and bigger as you pay off each debt — until you hit that last debt payoff!

Remember, if you’re trying to improve your credit score, you’ll want to keep your credit card accounts open after paying off your balances — just keep them in check and don’t overspend!