Welcome to the debt payoff club! 

Today, we are talking all about the Debt Snowball Method, it’s pros and cons, and how it can help you stay motivated while paying off your debt.

There are three main debt payoff strategies: Debt Snowball, Debt Avalanche, and Debt Consolidation. Different people prefer different debt payoff approaches, but the most important thing is that--when it comes to achieving your financial goals--you need to have a strategy.

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What is the Debt Snowball Method?

The Debt Snowball Method is when you order your debts from smallest to largest, regardless of interest rate, and pay the minimum amount on everything but the smallest balance. Once the smallest balance is paid off, you roll that money into the next smallest balance, and so forth.

Imagine back to your childhood years (or last winter) to when you were making a snowball and started rolling it along the snow until it was SO BIG that it was as tall as your knees.

That’s the whole idea of the Debt Snowball Method.

How Does the Debt Snowball Method Work?

Okay, so let’s say you have three different debts under your name:

• $3,000 of credit card debt with 18% interest rate, $75 minimum monthly payment

• $13,000 auto loan at a 3.6% interest rate, $350 minimum monthly payment

• $40,000 student loans at a 5% interest rate, $400 minimum monthly payment

You have $1,500 per month to (on average) to contribute towards debt.

With the Debt Snowball Method, you are going to pay the minimum monthly payment on your auto loan and student loan, and send $750 a month towards your credit card.

In 5 months, you will have paid off your credit card debt--YES!

Now take the $750 you were paying towards your credit card each month and add it to your auto loan. You are now paying $1,100 a month on your auto loan, and will have that paid off in another 10 months!

And, after the auto loan is paid off, you roll that $1,100 over to our student loan, giving you a $1,500 monthly student loan payment. In another 25 months, you will be completely debt free!

Using the Debt Snowball Method allowed you to pay off $60,921 of your principal balance and interest in 3.3 years.

If you had paid only the minimum amount each month, it would have taken you 10.6 years to get out of debt and you would have spent $69,273 total in principal and interest.

By using the Debt Snowball Method, you saved $8,904!!

Just think of what you can do with that extra money.

To get these calculations, I used NerdWallet’s Debt Snowball Calculator--it’s an awesome resource!

Pros

The biggest advantage of the Debt Snowball Method is that you can quickly start checking smaller debts off your list.

Checking off those smaller balances is incredibly rewarding, and allows you to see the light at the end of the tunnel. This gives a lot of people motivation to keep going during their debt repayment journey.

With other payment methods, it generally takes longer to start paying off balances in full.

Cons

Because the Debt Snowball Method prioritizes balance instead of interest rate, you may lose money on interest over time.

Because of this, some people prefer the Debt Avalanche Method instead.

Final Takeaways

Understanding different debt repayment strategies helps you pick a plan that will work for YOU! What works for someone else might not be your favorite, and that’s okay!

The Debt Snowball Method is great because it allows you to quickly see the progress you are making in your debt repayment, and start checking balances off your list.

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