A Comprehensive Guide to the Debt Snowball Method

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Being in debt isn’t just a financial issue; it’s an emotional issue. The more debt you have, the more discouraging it can feel. Getting out from under the pile can seem undoable. But it is possible to get out of debt (I paid off $20,000 of credit card debt), and the debt snowball method can help. (See also: A Comprehensive Guide to the Envelope System)

Figure Out Which Debt to Pay Off First

Of course, paying more than the minimum amounts required by your creditors will help you get out of debt as soon as possible. However, if you have multiple debts, which debt should you pay off first?

Some personal finance writers say you should focus on your highest-interest-rate debt first (sometimes referred to as the "avalanche method"), while others say it’s best to tackle your lowest-balance debt first (the "snowball method").

It’s true that going after your highest-interest-rate debt first is usually the route to paying off all of your debts the fastest and paying the absolute least amount in interest. However, going after your lowest-balance debt first is usually the route that’ll pay off one of your debts the fastest.

Getting one debt completely wiped out feels great, and that can give you the motivation to keep going. The idea is that the lowest balance debt is like a little snowball. Paying it off gets the snowball rolling downhill, building more and more momentum as you pay off more and more of your debts.

Create Your Own Debt Snowball

Using this Accelerated Debt Payoff Calculator, enter the details of all of your debts (credit cards, vehicle loans, student loans, and others — you can even include your mortgage), starting with your lowest-balance debt. You’ll find the interest rate on your bill, usually listed as APR or annual percentage rate. For payment amount, enter the minimum monthly payment required by your creditor.

At the bottom of the list, enter a monthly amount you’re willing to add to the total minimum amounts required. The calculator assumes you’ll add this amount to your lowest-balance debt. Once that debt is paid off, it assumes you’ll roll the full amount you were paying on that debt into the payment on your next lowest-balance debt.

Fix Your Payments

There’s one crucially important point to keep in mind as you go about paying off your debts. You need to fix your payments.

Here’s what I mean — let’s say you have a $6,000 balance on a credit card that charges 18% interest and requires a minimum payment of 2% of the balance.

This month, the required payment will be $120. That’s 2% of the $6,000 balance. However, next month, assuming you didn’t charge any more on your card, your required payment will be a little less.

Isn’t that nice of the credit card company? Of course, it isn’t kindness; it’s math. Since your balance went down a little bit, your minimum required payment went down a little bit as well.

Paying this declining minimum payment will keep you in debt for approximately…forever! Sticking with our $6,000 debt example, the declining minimum payment route will take you over 42 years to get pay off that debt, and you’ll pay another $16,000 in interest.

However, if you can afford $120 this month, you can probably afford $120 next month. And if you fix your payments at $120 each month, even when they shower you with kindness and require less, you’ll be out of debt in less than nine years.

The calculator assumes you’ll fix your payments, but your creditors have no such assumptions. So make sure you’re paying the same amount on your debts each month. For the one you’re accelerating, if this month’s minimum is $100 and you’re putting an extra $50 toward it, make sure to pay $150 toward it every month — not the declining minimum plus $50.

What’s been your experience with getting out of debt? Did you focus on your highest interest rate debt first or your lowest balance debt?

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A Comprehensive Guide to the Debt Snowball Method

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Guest's picture

Although the "debt stacking" method saves you more money, it really depends on what your interest rates are. Sometimes the difference in the $$ you can save isn't that much, so paying off the lowest balance will give you more motivation. As Dave Ramsey says, getting out of debt is 80% mental and 20% knowledge.

Guest's picture

Paying the lowest balance first is ridiculous unless you like give extra money to your credit card banks in return for a long payback period. It just make no sense. The only way to do this is high interest first--the end!

Guest's picture


Might have to disagree a little on this one. I wouldn't say it's ridiculous, that might be a bit of an overstatement. Unless your interest rates vary widely (2% compared to 29.99%), debt snowball can be more beneficial than paying off the higher interest rate first.

Yes, I know that paying the highest interest rate saves you more money, but have you ever done the calculations on it? Getting out of debt isn't just about crunching numbers, it's about taking the small victories to keep you motivated. Getting out of debt is more psychological, people don't accumulate debt overnight.

You can see an example of the difference in interest paid with debt stacking & debt snowball here: http://blog.debteye.com/debt-articles/debt-stacking/

Guest's picture

One of the not very often mentioned benefits of paying one card off completely is that --LO and BEHOLD -- that card will send you a balance transfer offer at a 0% or low % (1.9 to 3.9 in my case). This is the way I paid off $18,000+ in CC debt without having to apply for another card. As soon as I paid one off, got a balance transfer offer, transfered some of my high interest debt (24.99 to 29.99%) to it. By the time I was down to one balance, it was at 1.9% and easy to pay off. I've been living debt free for 5 years now and it is incredible!!!!

Guest's picture

After watching Davey Ramsey the motivation drew me in. Paying the minimum on all my debts and then what was left over after budgeting went straight to the lowest debt. I also found it important to make a budget that's strict but helps you to pay your self first meaning give yourself a weekly allowance, put some away for emergency and some for retirement even if its $1 - $5 bucks. List all your bills and take away any unnecessary bills. Spend one month and try to make it a continuous habit to write down everything you spend. Compare months and expenses and find the lowest debt. As you pay it off you can see the list getting smaller and your bank account savings getting bigger. It feels great! Lastly do your home work on bank interest and savings rates, programs like thank you rewards and I promise to get money for any maybe all online purchases and use those rewards as extra money towards your debt.