Debt Snowball

Debt snowball summary: 

• The debt snowball is a plan to pay down debt that begins with the smallest balance first. 

• A debt snowball strategy is designed to help you gain momentum in your debt repayment journey so you can stay motivated to see it through. 

• The snowball method for debt may cost you more in interest compared to other debt repayment strategies. 

Debt snowball definition and meaning

The debt snowball is a way to repay debt from the smallest balance to the highest. 

You pay as much as you can toward your smallest debt and make the minimum payments on your other debts. When you pay off your first debt, you roll its payment over to the next-smallest debt. The process is rinse-and-repeat until all your debts are gone. 

A debt snowball can help you stay motivated on your debt-free journey since you can knock out smaller balances fairly quickly. 

Key concept: The debt snowball is a strategy to pay debts from the smallest balance to the highest.

More on debt snowball

Debt won't go away on its own. You need a plan to tackle it head-on. The debt snowball method helps you stay motivated (and maybe even get excited) about your efforts to pay off credit cards or loans. 

It's easy to start a debt snowball, and it's designed to make it just as easy to stick to your plan. If you're ready to kiss debt goodbye, the snowball method could be just what you need. 

Debt snowball: a comprehensive breakdown

The debt snowball focuses on the amount of your debts, not your interest rates. Here's how it works. 

• You order your debts from the smallest balance to the largest.

• The smallest debt is your first target. You throw as much money at it as you can until the balance hits $0.

• While you do that, you make minimum payments against all your other debts. 

• Once you pay off your smallest debt, you add whatever you were paying to the minimum payment for the next debt on the list. 

• You repeat the process each time you pay off a debt. That creates a snowball so that by the time you get down to your last debt, you have one very big payment to make. 

The debt snowball is all about momentum and quick wins. Because let's face it, debt repayment can feel like a slog if you have a lot to pay down. When you can knock out one or two small debts quickly, that's a huge motivator to stick with the plan. 

Real-life example of debt snowball

Let's look at how a debt snowball might work. Say that you owe these credit card balances:

Those payments add up to $625. You have $700 total in your monthly budget for debt repayment.  

If you use the debt snowball, you'd take the extra $75 and tack it onto the $25 you pay on Card A. Your total payment is $100. Once that balance is paid off, you take the $100 and add it to the $90 you’re already paying on Card B. Your payment on that card is now $190 a month. 

As long as you continue to snowball payments (and don't add to your balances), you could have all the cards paid off in about 39 months. 

What if you can't make progress with the debt snowball? If you’re financially drowning, you might consider an option like debt resolution instead. Debt resolution is a strategy to get rid of debt for less than what you owe.