What is the debt snowball method?

The debt snowball method is a common approach to paying off debt, and one that you should consider if you’ve been struggling to make a dent in your balance. The snowball method is nothing fancy: it uses basic psychological principles to keep you motivated. By encouraging you to pay off your smallest debts first, this method can help you build the momentum necessary to tackle your largest debts when you feel ready.

The snowball method isn’t for everyone, and it may not help you save as much money on interest as other debt-repayment strategies. But if motivation is what’s been holding you back, this method could be a great approach for you. In this article, we’ll review the basics of the debt snowball method and how it can help you pay off debt quickly.

Originally popularized by personal finance expert and debt guru Dave Ramsey, the debt snowball method focuses on eliminating your smallest debts in the shortest amount of time possible. The idea is that by getting these nagging debts off your books early, you can build up the momentum necessary to tackle your larger debts. 

The debt-snowball method requires a bit of pre-work. First, you’ll have to list all of your debts (except for your mortgage) from smallest to largest. From there, you can set money aside to pay off your smallest debt first. Once that debt is fully paid off, you move on to the next smallest debt. The process continues, with the debts to tackle growing larger and larger—like a snowball rolling downhill—until you’re debt-free.

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For many people—yes! The debt snowball method works by activating the dopamine feedback loop in our brains. This loop is triggered when we engage in behaviors that the brain interprets as immediately rewarding, such as pulling the lever on a slot machine or scrolling through your Instagram feed.

According to the logic of the snowball method, the sense of success and satisfaction you get from closing out an outstanding debt can carry you forward to the next debt. There’s something to be said for this approach—especially if you’re the kind of person who needs small rewards to stay focused on bigger tasks.

Debt repayment is all about developing a plan of action. So let’s break the debt snowball method down into five simple steps so you can see how it works in practice.

1. Make a list of all your debts from smallest to largest. Exclude your mortgage from this list, as that’s not typically a debt you can choose to defer until later.
2. Start tracking your expenditures and set up a budget. By tracking your expenditures and trying to save where you can, you can get a better idea of how much you can afford to put toward your debts each month.
3. Pay off the minimum payment for all of your outstanding debts each month. It’s important to always pay your minimum payment for every debt, as not doing so can result in fines or penalties.
4. Use any extra money left over to pay off the smallest debt on your list. Put as much money as possible toward this debt, without compromising your basic needs.
5. Once a debt is fully paid off, move on to your next smallest debt. Repeat until you’re debt-free and ready to conquer another savings goal, like creating an emergency fund.

The best way to understand the debt snowball method is to see an example of how it works in action.

Say you’ve already paid all your monthly minimum payments. You have €500 left over to allocate toward paying off the following four debts, listed in order from smallest to largest:

• €100 loaned from a family member with a 0.0% interest rate
• €1,100 in credit card debt with a 24% APR 
• €2,000 in auto loan debt with a 12% APR 
• €10,000 in student loan debt with a 3.0% APR 

Using the debt snowball method, you would allocate your €500 as follows:

• €100 will go toward fully paying off the loan from your family member
• The remaining €400 will go toward your €1,100 in credit card debt.

If you have €500 left over the next month, all €500 would go towards paying off the remainder of your credit-card debt until it is fully paid off. Then, you’d move on to your auto-loan debt, and finally tackle your student loan debt.

Notice that, even though the credit-card debt has a much higher interest rate than the family loan, the family loan is paid off first. That’s because the debt snowball method doesn’t account for interest. Instead, it focuses on generating “wins” by paying off full debt balances regardless of their interest rates.

For this reason, the debt snowball method isn’t for everyone. We’ll get into the pros and cons in the next section, but if you’re looking for a debt-repayment method that takes interest into consideration and can save you more money over time, check out the debt avalanche method.

While the debt snowball method is a simple and motivating strategy, it’s not the most cost-effective approach. Before you commit to it, first consider the pros and cons of the debt snowball method.

1. It’s simple. The debt snowball method is easy to understand and doesn’t require a ton of work to get started. 
2. It can make debt feel less scary. It offers a clear, step-by-step approach to what can feel like an overwhelming task.
3. It works particularly well for those who are motivated by quick wins. The snowball method establishes a dopamine feedback loop early on. That dopamine kick may give you the motivation you need when things get tough. Sticking to the plan in tough times is vital if your end goal is to become debt-free.

1. Unlike the debt avalanche method, the debt snowball method doesn’t take interest rates into account. If your most expensive debt also happens to be your largest, this method can cost you a lot of money in the long run.
2. It may not be the most motivating approach for you. Some people prefer to get bigger debts out of the way first. For these people, the snowball method may fall short.
3. It may take more time than other strategies. Interest accrues over time. Not accounting for that can result in a longer debt-payoff timeline—not to mention more money spent on interest.

At the end of the day, the debt repayment method that works best for you is the one you stick to for the longest. If you’re the kind of person who is motivated by quick wins, then you might be more aligned with the snowball method.

Alternatively, if you find the idea of amassing an avoidable amount of interest demotivating, you may want to opt for the debt avalanche method instead. The key is to choose the approach that best matches your goals—and your personality.

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