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Home / Debt Snowball: How to be Debt-Free by Paying the Minimum Amount

Debt Snowball: How to be Debt-Free by Paying the Minimum Amount

Managing debt can feel like an uphill battle, but there are various strategies to help regain control of your finances. Some people turn to bankruptcy, debt settlement, or taking out additional loans to manage their debt. However, these options often come with significant consequences and complications. If you’re looking for another way, the debt snowball method might be the solution for you.

If you have been having a hard time keeping motivated and organized with your debt repayment, then following the snowball effect is the way to go. Their strategy is to pay off their smallest debts first because it gives them some early wins, builds them up using urgency (quick money, so quick wins), and just motivates them for the long haul.

In this article, we will delve into how the debt snowball method works and why you may need it to repay your debt.


What Is the Debt Snowball Method?

The debt snowball method is a debt repayment strategy where you focus on paying off your smallest debts first. By tackling debts with the lowest principal balances, you can gain quick wins that build momentum and excitement. According to a study by Northwestern Mutual, the average American carries about $29,800 in personal debt. The debt snowball method helps you address these debts step by step. Once you eliminate the smallest debt, you move on to the next smallest one, gradually increasing your payment power for larger debts. This process continues until all your debts are paid off.


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Why Is It Called “Debt Snowball”?

A person with a snowball

The debt snowball, or snowball method as it is sometimes called, borrows its name from how a snowball gets bigger when you roll it down a hill. The reason we call this the debt snowball is for a reason.

The debt snowball method starts with the smallest debt first. Then, each one of those small debts that you pay off represents more money that you can now use to apply to the next debt. Basically, this method is similar to a snowball rolling down a hill, getting larger and more momentum. Every time you pay off a debt, your confidence and financial motivation are increased.

Every debt you pay off makes you even more motivated to tackle the next one. These fast successes from the small debt payoffs are just like that snowball growing bigger and stronger.

In the same way, when you pay down your smallest debts, you should move to larger ones eventually, which then snowballs your repayment efforts. By the time you reach your largest ones, you have a ton of money to pour into your debts each month, which expedites the process.


Read More: What Is Debt Settlement?


How the Debt Snowball Works

A woman holding a snowball

The debt snowball method is a structured approach to paying off debt that focuses on building momentum and motivation. Here’s a step-by-step guide to how the debt snowball method works:


List All Debts

Start by making a list of all your debts. Include details such as the type of debt (e.g., credit card, student loan, car loan), the total amount owed, the interest rate, and the minimum monthly payment.


– Credit Card Debt: $2,000 at 18% interest, minimum payment of $50
– Medical Bill: $1,000 at 0% interest, minimum payment of $25
– Personal Loan: $5,000 at 7% interest, minimum payment of $100


Prioritize Debts by Amount

Arrange your debts in order of their amounts, from smallest to largest. The smallest debt will be your top priority.


1. Medical Bill: $1,000 at 0% interest
2. Credit Card Debt: $2,000 at 18% interest
3. Personal Loan: $5,000 at 7% interest


Make Minimum Payments on All Debts

Ensure that you continue to make the minimum monthly payments on all your debts. This keeps your accounts in good standing while you focus on paying off the smallest debt.


– $25 on the medical bill
– $50 on the credit card
– $100 on the personal loan


Allocate Extra Funds to the Smallest Debt

Apply any extra money you have each month to the smallest debt. Moreover, this could come from cutting back on discretionary spending, earning extra income, or reallocating funds from other areas of your budget.


If you have an extra $100 from reducing dining out and entertainment expenses, add this amount to the $25 minimum payment on your medical bill. Your total payment toward the medical bill would be $125.


Repeat the Process

Once the smallest debt is paid off, move on to the next smallest debt. Apply the same strategy: make minimum payments on all other debts and allocate extra funds to the current smallest debt.


After paying off the $1,000 medical bill, focus on the $2,000 credit card debt. Use the $125 you were paying towards the medical bill to now pay off the credit card debt. So, your total payment toward the credit card would be $175 ($50 minimum + $125 extra).


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Advantages of Using the Debt Snowball

A woman happy with using debt snowball

Below are four perks of using the debt snowball method to attain financial independence faster. Particularly, we will highlight the essential advantages of this strategy.


Quick Wins

Paying off the smallest debts first gives you quick wins. Generally, these small victories boost your motivation and confidence. This added motivation keeps you focused on your goal of becoming debt-free. As each small debt is eliminated, you feel more empowered to tackle larger debts.


Improved Financial Discipline

This approach forces you to maintain discipline in terms of costs. Further, regular additional payments are required to pay off debts. This encourages better money management habits. Over time, you develop stronger financial discipline and budgeting skills.


Psychological Benefits

Working on erasing little debts that are easy to pay off feels good. These positive reinforcements keep you inspired during your debt repayment journey. Feeling accomplished motivates you to continue. The psychological boost helps maintain your commitment to becoming debt-free.


Simplified Debt Management

By focusing on one debt at a time, you make your debts more manageable. This approach keeps you organized and allows you to see your overall progress. Simplifying your debt repayment plan reduces stress. Clear, focused goals make the journey to financial freedom easier to navigate.


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Disadvantages and Considerations for Debt Snowball

Money and charts

As good as the pros of the debt snowball method are, there are some cons and challenges to consider, too. This segment will touch on these elements to assist you in making the proper choice.


Higher Interest Costs

Since the debt snowball method prioritizes the size of the debt over interest rates, you may end up paying more in interest over time. This can be a significant downside compared to the debt avalanche method, which focuses on minimizing interest costs. Paying off small debts first might delay addressing larger, high-interest debts. Over the long term, this can increase the total amount paid.


Requires Consistent Effort

The debt snowball method must be applied methodically and consistently. Overall, if your financial circumstances change, keeping up with the extra payments can become difficult. Hence, this requires strong commitment and discipline. Without consistency, progress can stall, leading to frustration.


Emotional Impact

Ignoring a large debt burden with high interest rates can be frustrating. Focusing on smaller debts might make the larger ones seem insurmountable. This can lead to feelings of discouragement. It’s important to keep the complete picture in mind and stay focused on your overall goal of becoming debt-free.


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Debt Snowball vs. Debt Avalanche Method

A snowball

The debt snowball method and the debt avalanche method are two popular strategies for paying off debt, each with its unique approach and benefits. The debt snowball method focuses on paying off the smallest debts first, regardless of interest rates, to gain quick wins and build momentum, which can be highly motivating.

In contrast, the debt avalanche method targets debts with the highest interest rates first, minimizing the total interest paid over time and potentially allowing for faster debt elimination. While the snowball method can be more emotionally satisfying due to the rapid elimination of smaller debts, the avalanche method is often more cost-effective in the long run. Choosing between the two depends on whether you prioritize psychological motivation or financial efficiency.


Read More: Debt Avalanche: How This Method Can Pay Off Debt Faster



The debt snowball method is an excellent way to pay down your debts quickly because it allows you to tackle the smallest balances first. When you know how it works and apply those principles consistently over time, your results compound much more efficiently toward financial freedom. It may take more time, some grit, and determination, but the psychological benefits and fast wins of the debt snowball method can serve as a key tool in the movement towards financial freedom.

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