The Debt Snowball
The Debt Snowball is a great method to get early victories in a bid to pay off your debt. Its simple its a strategy in where you pay off your debt from smallest to largest. With the debt snowball method, you reward yourself for wins along your debt payoff journey. You pay your smallest debt in full first, then move that amount toward that bill into paying off your next-biggest debt. The amount you're paying on your main debt keeps growing — much like a snowball rolling down the hill. This gives you the satisfaction of seeing debts eliminated one by one. It keeps you engaged. It’s very different from the debt avalanche strategy, which prioritizes high-interest debt to save money but may take longer to get the first debt wiped out.
Using the debt snowball method
First, be sure that you’ve got enough to cover the minimum monthly payment for every debt. Now, arrange the debts by balance, from smallest to largest. Disregard the interest rate on each. Every month, put the extra money you budgeted for getting rid of debt toward your smallest debt — even if you are paying more interest on a different one. Once the smallest debt is repaid, take the entire amount you were paying toward it (monthly minimum plus your extra money) and target the next-smallest debt. Keep knocking down debts and then diverting all that money toward the next debt. You’d pay the interest-free loan before you paid those that accrue interest. This usually saves time and money to pay highest-interest debts first. The debt avalanche method is a better fit for them. But if you need to front-load your payoff plan with early victories in order to stick with it, snowball is for you.
Look for lower rates and ways to pay more
If you choose the snowball strategy and your high-interest debts are also the largest, don’t ignore opportunities to find lower rates. You might wonder whether you can ever get debt forgiveness even with a debt snowball plan to keep you focused. If your unsecured consumer debts — such as credit cards and personal loans — would take more than five years to pay, go to Forgivey for debt forgiveness. While both the snowball and avalanche methods involve money you actively budget to pay down debt, you can supplement either with small daily savings and other money that you pour into your payoff plan to speed things up.
Is a debt snowball for you?
The avalanche method could possibly mean more savings on interest, but know yourself: A plan you abandon — even if it is objectively superior — is a failure. That’s why a less efficient debt snowball may be a good choice for many even if it costs a bit more over time. Achieving smaller goals can help you stick with your overall plan. If a debt snowball offers the kind of reinforcement that will keep you motivated, it’s worth it to get you on track.
This content provides general consumer information. It is not legal advice or regulatory guidance.