How a Debt Snowball Can Help You Get Out of Debt Faster

Basically, a debt snowball is a way of paying down your debts in a particular order. You list out all of your debts, place them in the desired order, and then pay minimum payments to all but the first debt in the list. The first debt in the list is special, because it’s the one you focus on.

You throw every thing you can at that debt to knock it out as quickly as possible before moving on to the next debt in the list. Once the first debt is repaid, you add the money you had been paying on it to the next debt. Rinse and repeat, until all of your debts are repaid.

Each time you finish off one debt and move on to the next, the amount you pay grows. That’s the “snowball” part, although really I always visualize the process as making a snowman. When you make a snowman, you start out with a tiny lump of snow that you roll around the yard. It grows and grows, picking up snow like magic as it goes, until suddenly you’ve got a big ole snowman body. (Yes, living in the southwest means that making snowmen still fascinates me.)

The order most often recommended for your debt snowball is from smallest to largest — regardless of interest rate — because of the emotional boost you get from quickly paying off the first few debts. This is how a debt snowball can help you get out of debt faster.

This method takes advantage of the natural propensity to keep going when you feel like you’re making progress. This is better than paying for a while on a large (but high interest rate) debt and then giving up because there’s still so much left to repay that you feel like you’re never going to finish.

Have you had success with this method or are you currently using it? I’d like to hear your story if so, so feel free to comment.

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4 comments

  • Even though the debt snowball does not make full math sense it is an effective approach. Sometimes the results just speak for themselves. Thanks for highlighting the debt snowball.

  • Yeah the math bit bugged me too at first, but realistically unless you’re talking about an extremely high interest loan (like a payday loan), I suspect people rarely end up paying *that* much more in interest using the lowest-balance-first approach.

  • Jill

    Another advantage to a snowball in some situations is that you can end up with fewer payments to make per month. This simplifies your financial life a little and saves on the tedium of making the payments, but it also means you have that much less chance of making a mistake and missing a payment or paying late. Particularly for credit cards, one late payment can cost you a lot of what you might have saved on interest.

  • Jill, that’s true. As you make progress in the snowball the number of payments to make per month will reduce with each debt that you pay off.