Debt Snowball Method: What It Is And How To Use It

If you feel like you're facing a mountain of debt, the debt snowball method can help you to tackle it one step at a time. This approach lets you take control of your finances by starting with smaller debts and gradually gaining momentum. By conquering each small peak, you can pave the path to debt-free living. But before you begin your climb, let's explore what you need to know to make the most of this strategy.

What Is The Debt Snowball Method? 

The debt snowball method is a way to pay off debt that uses positive reinforcement to keep you motivated. While some advice may suggest paying off high-interest debt first to save on overall interest payments, the debt snowball method uses a different approach. It encourages you to start by paying off your smallest debt first, no matter what the interest rate is. This debt repayment strategy aims to create early wins and build momentum.

Think of the debt snowball method as rolling a snowball downhill. You start with the smallest debt and push it, watching it disappear. You start with the smallest debt, pay it off, and feel good about it. This feeling motivates you to keep paying off the next debts.

Each debt you pay off feels like leveling up in a game. As you go, you free up more money to tackle bigger debts. These small wins help you build up to bigger victories and eventually become debt-free.

Debt Snowball Vs. Debt Avalanche Method

The debt snowball method starts by focusing on eliminating your smallest debt first. Once it's cleared, you take the money you were putting toward your first debt balance and add it to the next smallest debt, and so on. This keeps the momentum going until all your debts are paid. As you clear each debt, you free up more money toward your debt repayment, making the process faster.

On the other hand, the avalanche method is a strategic approach that focuses on tackling debts with the highest interest rates first. While it might feel overwhelming if your high-interest debt is substantial, this method offers long-term benefits. Once you've paid off the highest-interest debt, you proceed to the next one. This gradually lowers your total debt and saves money over time, providing reassurance and confidence in your financial future.

Basically, the snowball method emphasizes quick wins by prioritizing smaller debts, while the avalanche method aims to save money over time by initially targeting higher-interest debts. If you prefer to see progress quickly and stay motivated by small victories, the snowball method could be the way to manage your debt.

With both methods, it’s recommended that you continue to pay at least the minimum payments on all other debts while tackling either your smallest or largest debt.

Debt Snowball Method Pros And Cons

Let's delve into how the snowball method can be a game changer for overcoming debt.

Debt Snowball Method Pros

Let's take a look at the pros of using the snowball method to repay your debts.

• Fast wins: Paying off smaller debts first gives you a quick win. This boosts your motivation for the longer journey of debt repayment.
• Straightforward: Organizing your debts by amount owed may be easier than by interest rates.

Debt Snowball Method Cons

While the debt snowball method can be beneficial, there are also some drawbacks.

• Pay more in interest: Paying off your smallest balance first and leaving the largest for last might lead to accumulating more interest. 
• Other considerations may take priority: The debt snowball method might not consider reasons you might want to pay off certain debts first, like to take advantage of a 0% APR introductory offer on a credit card.

How To Use The Debt Snowball Method To Pay Off Debt

Here's a breakdown of how the debt snowball method works:

1. Jot down all of your revolving debt balances, ordering them from the smallest balance to the largest. 
2. Pay the minimum on all your debts except for the smallest balance. 
3. Use any extra cash you have to put toward your smallest debt balance first. 
4. After the smallest debt is gone, use the money you were allocating to pay off the next smallest debt until it's also taken care of.
5. Repeat this process until all of your debt is paid off. 

Let's break it down with a real-life scenario. Imagine you're juggling these four debts:

• Student loan: $15,000
• Mastercard credit card balance: $3,000
• Visa credit card balance: $1,000
• Auto loan: $5,000

Since your Visa balance is the smallest, start with that one. First, make the minimum payments on your other debts while paying more than the minimum on your Visa each month. Aim to pay as much as possible toward the Visa balance until it’s cleared.

After paying off the $1,000 Visa, shift your focus to the next smallest debt, like the $3,000 Mastercard balance. Use the money you were paying on the Visa and add it to your payments for the Mastercard. For example, if you were paying $200 monthly on the Visa, add that $200 to your payments for the Mastercard. Keep following this pattern until you're debt-free.

Remember, setting up autopay for all your monthly debt payments can simplify this process, avoid late fees and help maintain your credit score.

Other Debt Repayment Strategies To Consider

The debt snowball method isn’t the only approach to debt repayment. Here are a few alternative strategies to tackle your debts.

• Debt consolidation: Debt consolidation simplifies payments by combining multiple debts into one, commonly by using a personal loan or home equity loan, potentially saving on interest. It's used to lower monthly payments or interest rates or for the convenience of making one monthly payment.
• Balance transfer: A balance transfer involves shifting debt from one account to another, often seen with credit cards. This allows you to pay off the balance in full and save on interest. This move can also reduce monthly payments, especially if you transfer to a card with a 0% introductory APR, where you can make debt payments interest-free for a period of time.
• Debt management plan: Credit counseling agencies offer debt management plans to help borrowers pay off unsecured debts like credit cards and medical bills, simplifying repayment with a single monthly payment.
• Debt settlement: Debt settlement involves negotiating with creditors to pay a reduced amount of what you owe, aiming to improve your long-term credit outlook while avoiding late payments. While it could be better for your credit than paying the total balance, successfully settling and paying as agreed can positively impact your credit report.
• Debt snowflake method: With the debt snowflake method, you use small savings and daily earnings to chip away at your debts, making a significant impact over time. For example, if you earn cash back rewards or get a bonus at work, you can put that extra money toward your debt balances. You can combine this strategy with the debt snowball or debt avalanche method to pay off your debt faster.

Snowball Debt Method FAQs

You're seeking advice on clearing your debt. We're here to provide solutions.

Should I use the snowball method to pay off debt?

Determining the best debt repayment strategy depends on your situation and preferences. If you're motivated by small victories, the snowball method might suit you. However, if saving time and money is a top priority, exploring options like the avalanche method could be a better fit.

Should I save or pay off debt with the snowball method?

If you're torn between saving or paying off debt using the snowball method, consider your financial goals. While paying off debt first can reduce interest costs, it's important to have emergency savings to avoid future debt.

Would paying off debt with the snowball method increase my credit score?

Using the snowball method to pay off debt could help boost your credit score gradually. By making regular minimum payments and lowering your debt balances, you're ticking off boxes that can improve your credit score over time.

The Bottom Line

The debt snowball method is a great way to tackle debt gradually, starting with smaller debts for quick wins. However, you might find that other options like the debt avalanche method suit you better, depending on your situation. Regardless of the path you take, it's vital to tackle the underlying financial habits that landed you in debt. This might mean making some big changes in your spending habits to reach your money goals.

If you’re ready to take control of your debt, the Rocket Money^SM app can assist you in staying on top of payment due dates and managing your spending as you pay down debt. Download the app today to track your finances all under one umbrella.