The snowball method, founded by Dave Ramsey, a personal finance expert, is a common way of paying off debt. It’s a debt-reduction strategy where you prioritize your debt from paying the smallest balance first and work your way to your largest balance.

To avoid damaging your credit score and incurring late fees, you make the minimum monthly payments on all your debts. Then, with the funds you have remaining, you start paying your smallest debt off first. After you’ve paid your smallest debt off, you then take the amount you were paying and start applying it on top of what you’re already paying on your next-smallest balance.

If you think of a snowball that rolls down a hill, as it rolls, it gains mass. This is the same effect the snowball method has on your debt. You start small and slowly begin gaining momentum.

Benefits of the Snowball Method for Paying Off Debt

The psychological boost you get is one of the main benefits of the snowball method. As you see your debt start to disappear, it increases your motivation to keep paying off your remaining financial obligations. The progress you’re making will continue to grow even if you only paid off your smallest balance.

Not to mention, this method of paying off debt helps you get a better grasp of your overall finances, which in turn lowers your stress. Since you are focusing on only one debt balance at a time, it eliminates concern about having to attack all of your debt at once. 

Step-By-Step of How the Snowball Method Works

Here are the steps on how the Snowball Method works:

  1. List all your debt in a single column (excluding your mortgage), from the smallest debt to the largest (auto loans, student loans, personal loans, credit card debt, etc.)
  1. List each debt’s monthly minimum payment in the next column.
  1. Pay the minimum amount due on each of your debts every month. Then pay as much as possible on the smallest debt you’re tackling first. For example, if all of your monthly minimum payments together equal $500, pay those first. Then take money you don’t need to live on for the rest of that month and put it on your smallest debt. So if you have an extra $100, put that on your smallest balance debt.
  1. After you pay off your smallest debt, roll the amount you’ve been paying on it over to the minimum payment of your next smallest balance. So, you’ll continue to pay just the minimum amount on each of your debts each month, with the exception of the next smallest balance you’re trying to tackle. For example, if you paid off a debt with a $25 minimum balance, take that $25 and use it as an extra payment on your next smallest debt. Essentially, you will be paying the minimum payment on the next smallest debt AND an extra $25, which was the minimum payment of the debt you just paid off before this one.
  1. After you pay off the next smallest debt, you’ll move on to the next smallest debt and repeat the method. You’ll continue doing this until you clear all of your financial obligations.

The snowball method of paying off debt is more of a mental strategy. Because you’re basically paying one debt off at a time, it will feel like you’re making more progress than if you attempted to tackle all debts at once. It gives you an opportunity to celebrate your small accomplishments, which can help motivate you to continue the process.

If you’re finally ready to take control of your debt, you might want to give the debt snowball method a try. We have financial coaches standing by to help you make a solid plan!  

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Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.