If you’re struggling with how to pay off debt, you’re not alone. Four in five Americans with a credit file have some debt, not including mortgages, according to the Urban Institute. Low wages make it difficult for many people to keep up with interest, and sticking to a budget can be hard when we’re dealing with unexpected life changes or being constantly bombarded with targeted advertisements.
But getting out of debt isn’t a hopeless endeavor, even if you feel like you’re drowning in debt. You’ll need a proven strategy, a budget, and a lot of self-control, but as each debt disappears, you’ll feel the burden lifted. We’ll walk you through the steps of the debt snowball method — a strategy that works to pay down debt — and help you build the kind of financial habits you’ll need to be successful.
What is the debt snowball method?
The debt snowball method is an approach to paying off debt that prioritizes your smallest debt so you can reduce the number of open debts as quickly as possible. You can use this method for any type of debt, but it works best if all your debt has similar interest rates.
Why does the debt snowball method work?
Paying down debt can be really difficult, and you may have failed in the past if you didn’t have a strategy to utilize. If it seems like you can’t get rid of debt amid mounting interest and fees, you might be tempted to ignore the problem — and even take on more debt. But when you use the debt snowball method — and watch your debt slowly disappear — you’ll be motivated by your progress.
If you need small successes to keep you on track, the debt snowball method will likely inspire you to keep putting your extra money toward your goal of eliminating debt.
The 3 basic steps to the debt snowball method
1. List out your debt in order of smallest to largest, along with your minimum payments
You can find this information on your last paper statement or by logging into your financial institution’s website. Organize the information on paper or use something like an Excel or Google Sheets spreadsheet. Here’s an example of what to put on your list:
|Name of debt||Total debt||Minimum monthly payment|
2. Put any extra money toward your smallest debt
Each month, pay only the minimum payments on everything except your smallest debt. So, for example, if you have $400 extra in your budget to put toward your debt, you’ll apply that amount toward your smallest debt (in addition to the regular minimum payment). In our example, we put it toward our credit card:
|Credit Card||$2,000||$200 + $400|
3. When that debt is zeroed out, move on to the next-smallest debt
In this example, you’ve paid off your credit card, so you move on to putting all your extra money toward the auto loan. Once you’ve finished paying the next-smallest debt, you can remove that debt from the list. As you progress, the number of open debts will get smaller and smaller.
|Auto Loan||$8,000||$500 + $400|
Creating a budget is key
Without a clear understanding of your income and expenses, you won’t know how much extra money you can throw at your smallest debt while still keeping up with your bills.
Here’s how to create a budget:
- Add up your baseline income, or the minimum amount you earn each month.
- Deduct your monthly expenses from your baseline income.
- Decide how much you’ll need to spend on necessities, like food and gas. Use a budgeting app like Mint to help you assess what your monthly expenses will be.
- Subtract the cost of your monthly necessities.
- Whatever you have left over can go toward paying down your smallest debt.
If you need more tips on tracking and managing your money, see our seven basic money lessons.
You can add debt snowflakes to your debt snowball
Think of a snowflake as a way to pay down debt a little bit faster, either through saving money on your purchases or earning more income to put toward your debt. Adding “snowflakes” helps your “debt snowball” become more powerful and pick up speed.
There are myriad ways to save money, from cutting out unnecessary expenses to hunting for deals and coupons. We also love cashback shopping apps, like Ebates and Ibotta, which make it easy to get rewarded for your purchases.
You can also start a side hustle or pick up a weekend job to help you earn extra income to pay off your debt faster. You might be surprised by how easy and fun some opportunities are. Find something that aligns with your hobbies and interests, and it may not even feel like extra work.
Who is the debt snowball method best for?
If you enjoy celebrating milestones in getting out of debt, the debt snowball method might be a good choice for you. But you should know that, mathematically speaking, prioritizing your highest-interest debt is the most efficient strategy and will cost you the least amount overall. This method is known as the debt avalanche, and it’s a really effective strategy for some people.
However, the debt snowball method tends to be more motivating, so if you think you’ll be more likely to succeed at a strategy that lets you see your successes earlier on, it’s a great place to start.
Just by choosing one of these strategies, you’re making a responsible decision to dedicate yourself to debt repayment. And you can always switch to the debt avalanche method in the future, once you’ve gotten some of your smallest debt out of the way. So choose a plan that motivates you — and stick with it!
Frequently asked questions
Does the debt snowball really work?
The debt snowball method has helped millions of people prioritize and pay off debt. Its core strength is the way it helps you build quick wins by paying off small balances. The positive feelings of successfully eliminating a smaller debt then fuels your motivation to keep going, helping you build momentum toward getting completely out of debt. So, yes, the debt snowball method really can work!
What debt is better to pay off first?
If you’re following the debt snowball method, you’ll pay off your debt with the smallest balance first, regardless of the type of debt it is. But how do you know which debt has the smallest balance? Call or log into the accounts you have with all your credit issuers.
From there, you should be able to get a statement on your current debt balance. Repeat for each debt, and then order them from smallest to largest. Then, target the lowest balance and apply all “extra” money to this debt first. Once it’s paid off, you will move on to the next-lowest balance on your list.
How can I get out of debt fast with no money?
How fast you can get out of debt will depend on how much you owe, and how quickly you can generate extra money to pay it off. If you want to speed up your debt repayment, you’ll need to come up with extra funds to pay down your debts.
How do you do this? Look for items you own that you could sell or rent out to get some extra cash. Consider picking up an extra shift at work, a second job, or a side hustle. As you earn extra money, make sure you put it all toward your main goal of paying down debt.
Is it better to pay off debt or save money?
Paying off debt and saving money don’t have to be competing goals, but you will need to decide how to prioritize each. Saving money first can be wise if you need to build up an emergency fund. Contributing to retirement funds is also worth prioritizing, especially if your employer offers a matching contribution.
But if you have high-interest debt or your payments are becoming unaffordable, focus on getting your debts under control first. The situation will be different for everyone. So, think over your finances to decide whether to put more funds towards debt or savings first.
Is the debt snowball or debt avalanche method better?
It’s best to take a step back and decide which debt reduction method is better for you. The debt avalanche strategy targets debt with the highest interest rates, as these are costing you the most money. By lowering these debts faster, you’ll pay less interest to get out of debt and save money in the long run.
The debt snowball method is better if you think you might have trouble sticking with your debt repayment goals and could use extra motivation. Debt snowball is also better for freeing up cash flow faster. As you knock out smaller debts, you get rid of the minimum monthly payments they come with, too.
The bottom line
Any debt repayment strategy is only effective if you’re not continuing to pile on more debt, so make sure to spend (and save) responsibly. Learn to be frugal, and cook your meals at home instead of eating out, take advantage of free events in your community instead of paying for entertainment, and visit second-hand stores for items you need.
Once you’re out of debt, you can start putting your hard-earned cash toward the things that matter to you. And if you’re struggling to get there, it’s okay to ask for help. If you need someone to talk to, consider seeking out a credit counselor. The National Foundation for Credit Counseling is a nonprofit organization that will work with you to assess your debt and help you plan for repayment.