Debt Snowball Method: What It Is and How To Use It to Get Out of Debt

In this article: Learn how to get rid of debt by implementing the debt snowball method of repayment.

If you want to repay debt because it stresses you, then it makes sense to come up with a plan.

In all likelihood, you may have already put a plan together – multiple times even – only to find that you gave up for a variety of reasons and now you find yourself no farther ahead than before you started your debt repayment program.

No worries. This time, it will be different.

Repaying debt the right way

If you are like most people, chances are that you have focused on repaying debt the wrong way.

You might have looked at a straight debt repayment program where you tackled the highest-rate credit first with the intention of working your way down to the lowest rate.

Tackling debt based on the rate you are paying makes great sense because the more you start saving, the more you can put toward your other debt balances.

Or maybe you tackled the debt with the highest payment first because this makes sense too. As soon as you get that big payment out of the way, you can allocate that money to another debt balance and repay that balance quicker too.

Well, if you tried either of these two strategies and failed, here is why:

Those strategies take longer to show some good results.

Here, let me explain:

Debt that carries a higher rate will require a lot more of a principal reduction before you notice a good chunk of it going away.

On a $20,000 debt at 19.9%, roughly $331.67 is interest alone. If you are paying $400 toward that debt, (a lot of money, no doubt about that), you are only seeing your balance reduced by $68.33 every month.

After a year of paying $400 per month, you will have reduced your debt by a marginal amount. No wonder you gave up — who wouldn’t?

And if you tried tackling the debt with the highest payment, chances are high that you also gave up because the progress you saw really did not correlate to the effort you were putting into making that debt go away. After a full year, why bother?

The best way to repay debt if you become discouraged by the small amount of progress you made in your goals is to use a fancy, somewhat counter-intuitive debt repayment program known as the Debt Snowball Method.

The Debt Snowball Method Explained

To get started using the debt snowball method of repayment, you first have to lay out all of your credit cards and other debt in front of you. You then look solely at the balances, not the payments, and not the rates these companies are charging you. Now you focus on the debt with the lowest balance.

That’s right, focus first on the debt with the lowest balance. That means if you have five credit cards, you take the one with the lowest balance. Period.

Once that credit card is paid off, you move on to the next credit balance (always making your minimum payments on the others with the one “in focus” getting all of your extra financial resources).

The trick with this strategy is that after you repay one debt, you will see just how possible it is to repay all of the debt.

You will also find that while it may not have been all that fun at the time, achieving the goal is not only possible but it happens quicker in hindsight than it does at the moment.

Psychologically, all of the other debt will be that much easier to repay because you have experienced the process once already.

How To Get Started With The Debt Snowball Method

Using the debt snowball method to repay debt starts with two key documents. The first is a budget (yeah, not fun but essential), followed by a Debt Snowball Worksheet (a lot easier than you can imagine!).

Completing a budget will allow you to see how much you can realistically afford to dedicate to your debt repayment plan.

The Debt Snowball Worksheet puts each of your debts in writing and allows you to keep your eye on the target.

It also gets you to think about things like the rate, minimum payment, and when you plan on making those payments. As hokey as it may sound, putting these goals in writing will actually help (trust on this).