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Have Credit Card Debt? Here’s One Repayment Method That Actually Works
Two major methods dominate the debt repayment sphere: the debt snowball and the debt avalanche.
One method prioritizes paying off debts with the highest interest rate first — minimizing interest payments over time. That’s the debt avalanche method.
The other method is to prioritize paying off the smallest balances first so you can enjoy quick victories, boost motivation and build momentum. That’s the debt snowball method — a method that’s especially beneficial for folks who need visible progress to stay consistent and committed to their debt repayment journey — and here’s how to do it.
Popularized by money guru Dave Ramsey, the debt snowball method involves paying off one credit card or loan balance at a time, starting with the smallest balance first until you’re totally debt-free.
This debt snowball strategy is perfect for people who are motivated by quick wins. However, there’s a downside: You may end up paying more interest in the long term.
Many people disagree with the concept of paying more interest for quicker wins. Why would you pay off smaller balances and let those interest-mongers sit?
Because you’re not a robot — you’re a human being. It’s important to pick a debt management strategy that works for you and keeps you engaged.
Whether you want to get rid of high-interest credit card debt or even your monthly mortgage payment, using the snowball debt repayment method can help you achieve financial freedom.
The debt snowball method helps you take that difficult first step in paying off debt — and then the next step, and the one after that.
It’s a simple process. Here’s everything you need to know.
Start by listing all your outstanding debts. Disregard the interest rates.
Then, order them from the smallest balance to the largest. This can be done on paper, a spreadsheet or a budgeting app like Rocket Money or Monarch.
Debt accounts we recommend including:
To start a debt snowball plan, you’ll first need to make sure you pay the minimum balance across all your bills, so figure out the minimum due for each debt. If you’re struggling to get out of debt, take a look at your budget and consider ways you can cut back your discretionary spending. Look for ways to earn more money on the side as well.
Look for ways every month to lower your spending and increase your income. You’ll need that extra money for the next step.
Once you’ve budgeted minimum payments for your debts, put any extra money toward the first loan on the list — the one with the lowest balance.
That means you’ll be paying the minimum plus your designated extra on that debt. Let’s say $50 plus $150 extra for a total payment of $200.
By starting with your smallest debt, you’ll theoretically finish paying the balance off faster than you could have paid any other.
But don’t stress if it feels like even the tiniest debt is taking forever to pay off — there’s a learning curve to the snowball method, and most people start off slow. Once you do pay off the smallest debt, take every penny you were putting toward that debt and add it to the monthly payment for your next smallest debt.
That means you’ll be paying the first debt’s minimum payment ($50), the second debt’s minimum payment ($100, for example) and your designated extra monthly dollar amount ($150) all toward the second debt. Now, you’re making a $300 monthly payment instead of $100.
Continue paying that amount until the second debt is paid off. Depending on the size and interest rate of your second smallest debt, you could see that balance dry up even quicker than the first.
Once your second debt is paid off, apply the debt snowball strategy to all of your other debts.
For the third debt account, pay the total of the first debt’s minimum payment ($50), the second debt’s minimum payment ($100), the third debt’s minimum payment ($125, for example) and the designated extra every month ($150). That’s how you snowball your way into putting $425 toward that debt each month.
It’s a simple concept but requires patience and consistency.
If you’re skeptical about paying a little extra interest but know you need quick wins, give the debt snowball a try. Once this debt management strategy is in place, you’ll see how negligible that extra interest can be.
The real magic behind the debt snowball method is its psychological effect. When you face a mountain of debt that seems impossible to overcome, breaking it up into easier chunks helps it feel manageable. As you celebrate each new win and milestone, your commitment grows.
Along the way, you practice better budgeting and improve your financial skills to avoid accruing more debt in the future. It’s an empowering process that can change how you think about money.
A closely related alternative to the debt snowball method is the debt avalanche method. While the debt snowball disregards interest rates, the debt avalanche method has you list out your debt balances ranked from highest to lowest interest rate.
Because these processes take time, you will continue to rack up more interest while paying down debt. If you choose the avalanche method, you may have to wait longer for your first big win, but you’ll save on interest in the long run.
Both are effective methods of approaching your debt management plan, just pick which one fits you best.
Elyse Schwanke/The Penny Hoarder
If your chosen path is rolling that debt up into a snowball you can toss off a cliff, here are some key strategies to consider to keep you on the path to success.
Managing debt isn’t easy, and it won’t always be fun. It takes patience, consistency and careful money management. Even with a process like the debt snowball method, there’s plenty of room for challenges and slip-ups. Don’t let them put you off your goals.
There’s a reason this method has been so successful for so many people. It works. For the most part, it’s a simple process that you can manage without the help of a financial advisor or debt management firm. It’s worth a little extra prep and effort to find your financial freedom at the end of the path.
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