Table of Contents

    Using The Debt Snowball Method To Become Debt-Free

    Do you feel buried under a mountain of debt?

    Here’s a simple and effective way to keep yourself motivated and on track, all while keeping your credit score intact. 

    The debt snowball method is an effective debt repayment strategy designed to attack your smallest debts first. Just like a rolling snowball, you’ll start small and grow your progress step by step until your debt is totally paid off. 

    By paying off your debts as fast as possible, you’ll see them struck off the list and stay motivated as you progress from the smallest balance to the largest. 

    Snowball Method

    How To Use The Method

    The method is simple to use - in fact, that’s one of the reasons it works so well. All you need to do is follow these steps:

    Step 1

    Make a list of all your debts including credit cards and loans, and list them from smallest to largest. Don’t worry about the APRs for now. 

    Step 2

    Write down the minimum monthly payment for each debt and add them together. You’ll need to pay this amount each month to keep your debts in good standing. 

    Step 3

    Choose your smallest debt and throw all the extra cash you have at it - even if it means cutting out nice-to-haves or bringing in some side income. 

    Step 4

    Once your smallest debt is paid off, you’ll have more cash available each month. Use it to start paying off your second-smallest debt.

    Step 5

    Eventually, you’ll strike your debts off the list one by one and have more cash on hand to repay your biggest debt. Eventually, you’ll be debt-free. 

    The snowball method works because it lets you score your first win quickly: paying off your smallest debt in full. This will motivate you to keep paying off your other debts and help you avoid debt fatigue. 

    Let’s take a look at a real-life example that will illustrate how the method works. 

    An Example Of the Snowball Method in Action

    To understand the method better, let’s look at a list of debts that would be familiar to many indebted consumers:

    Type of DebtBalance OwingMinimum Monthly Payment
    Medical bills
    Credit Card$2000$50
    Auto loan$8000$150
    Student Loan$12000$110

    As you can see, we’ve sorted the debts from smallest to largest. Following the snowball method, we’ll want to pay down the medical debt first and make sure we make our minimum monthly payments on all the other debts too. 

    In this case, the total minimum monthly payments come to $370. 

    Let’s set a monthly debt-reduction budget of $800 and bring down the medical debt by an extra $430 a month over and above the monthly payments. Every time we pay off a debt, we’ll roll its monthly payments into the payment on the next-biggest debt. 

    Here’s the repayment timeline for this scenario. 

    • The medical debt will be repaid in full after just 2 months - next up is the credit card
    • The credit card will be repaid by month 6 - now for the auto loan
    • By month 20, the auto loan will be fully repaid and we can now throw all our resources at the student loan
    • 37 months after we started (that’s just three years and a month) all our debts are theoretically cleared, giving us an extra $800 per month in our budget that can be used for savings and investments

    This example used a manageable repayment amount of $800, but you can adjust your monthly repayment budget according to your income. 

    The more you pay above your minimum payment, the quicker you’ll repay your debt - and the more you’ll save on interest-rate charges. 

    Is It Good For You?

    It provides an easy and manageable way to reduce your debt in small chunks over time. You’ll get a lot of satisfaction using this method because you’ll see your debts cleared and eliminated for good one by one. 

    If you’ve had trouble repaying your debt in the past because you just didn’t see any progress with your repayment method, the snowball approach may be the ideal way to motivate yourself to repay your debt. 

    On the other hand, if you have one big outstanding debt like a credit card with a large balance or a student loan, the debt snowball approach may not be ideal. 

    Bottom Line 

    The debt snowball is a great approach to debt reduction through small, manageable steps. It provides a great sense of achievement because it allows you to defeat your debt through a series of small wins. 

    If you have multiple smaller debts that you need to pay off, this approach represents an excellent option.