What You Must Know About the Debt Snowball Strategy

Tolu Gabriel
Tolu Gabriel October 25, 2021
Updated 2021/10/25 at 3:01 PM
What You Must Know About the Debt Snowball Strategy
Close-up Of Pencil Eraser Erasing Debt Word On White Paper

Accumulating huge mountainous debts is not healthy for your finances. Though there may be healthy reasons to get loans, but if repaying becomes a stress on your finances and personal life, you really want helpful ways to get out of the debt fast. The debt snowball strategy will be very helpful with Debt management.

The debt snowball strategy is a method of paying off debts by tackling the least balances first and gradually growing to attack the bigger ones. Since the smallest ones will be easier, repaying them will help you oil your motivation in addressing the larger ones and finally become debt-free.

We have detailed the debt snowball strategy, and shown examples of employing the strategy in action with the steps through burdensome debts, and also the pros and cons of the strategy.


What Is the Debt Snowball Strategy?

The Snowball debt repayment method works by following a snowball kind of pattern in repaying your debts. It often requires that you begin with the smallest debt first. After paying it off, then move on to the next smallest debt. Then, move on to the next after you have paid that off till you finally pay off everything you owe.

Sticking to this process can be very helpful in helping you organize your finances in the long run. Continue to make the required minimum payments on your loans with an extra cash per month going into your smallest loan balance.

This strategy should be considered by people who feel overwhelmed by debts. You’ll finally regain a sense of control during your loan repayment period. The debt Avalanche strategy can help you to minimize your interest cost but the debt snowball works to keep your motivation on top level.


How the Debt Snowball Method Works

Getting started with the debt snowball strategy is easy and can be done in just a few simple steps.


Organize your debts. It is important to this to help you have a clear focus of what you are addressing. 

Make a list of your active debts. Enumerate them from the least at the top to the hugest at the bottom. Do not take the interest rates, monthly payments amounts, and other loan addons to record while doing this. Just focus on the loan balance.

Pay the minimums. Doing this will be beneficial for keeping your credit cards and loans from attracting penalties and fees that may cause damage to your credit score.

Add extra to your smallest loan balance every month. Rather than stick to the exact amount for each month, consider adding a little extra to the loan at the top of your list. You really want the smallest debt cleared out first.

Move on as you succeed. Once you have paid off your smallest balance successfully, strike it out and move down to the next on the list. You may also want to make this memorable with a little celebration. Apply everything you implemented in paying off the initial loan into the next. After each debt is fully paid the next one will appear bigger. You’ll find different apps that are suitable for iPad, iPhone, and other iOS devices that will make it easy to eliminate the debts fast.


An instance of applying the debt snowball method.

If you have many outstanding debts to clear, and your monthly budget indicates that you have an extra $100 left each month for extra loan repayments. You can apply the debt snowball strategy, harnessing the $100, to pay off the debt.

List out the loans or credit card debt first from the least to the biggest.

 Debt Snowball Example:

Type                              Balance    Rate    Minimum Payment

Personal loan               $2,000        7%        $39.60

Private student loan    $13,000       5%       $183.74

Credit card                  $16,000       17%      $480.00

Auto loan                    $21,559       4.75%   $404.38


Using the debt snowball method, that additional $100 you have goes into your personal loan first, and so, $139.60 which is the sum of the extra $100 and the required $39.60 is paid to your lender each month. The minimum on the other three loans must be paid also.

Once you have completed the payment on each loan, that loan’s payment can be readily used to pay the extra debt. So, once the personal loan has been cleared, you’ll have an additional $139.60 available for the next loan since you will not be having minimum payments to be made to your lender again.

Hence, an extra amount can go to your student loan servicer. You need to make the required $183.74 with $139.60 to make a total sum of $323.34.

So, once your student loan is cleared, you’ll have an extra $323.34 available for settling your credit card. This goes on and on till you have finally become debt-free. You can follow that Debt Snowball method shown in the above example to repay your debts.


Debt Snowball vs. Debt Avalanche

The debt snowball method has had a proven success record with many borrowers who were once overwhelmed with a long list of debts but have finally turned debt-free. There is another popular repayment strategy which is called the debt avalanche.

This method prioritizes the debts that have the biggest interest rates, unlike the smallest loan balance with the debt snowball strategy. This lowers your interest costs and finally makes you debt-free quicker but may not come with the quick wins accompanied by the snowball method that helps you stay motivated in repaying your loans.

So, with the debt avalanche strategy, instead of prioritizing the personal loan above the credit card in the given example, you’ll need to consider the credit card rates and consider it first. However, you might have a long period of paying down a $16,000 balance, which could get you easily discouraged. One major benefit of implementing the debt snowball strategy is that it gives you a sense of accomplishment early in the repayment process which boosts a positive vibe in moving on.


Should I Use the Debt Snowball Method?

You may consider this method if you need a less stressful approach to becoming debt-free. If you enjoy those small victories that generate positive reinforcement and without so much high-interest debt, you could consider this method.

While this strategy is great, it isn’t right for everyone alike. Sometimes accelerating your payments on some kinds of debts may not be wise. For instance, with someone who is chasing after Public Service Loan Forgiveness for federal student loans, you might be permitted to quit loan repayment after successfully making 120 qualifying payments.

And after this qualifying repayment is done successfully, what is left on your debt will be pardoned. Hence, there is really no much benefit to making the extra pay. With these kinds of loans, it may be much better paying as little as you can under income-driven repayment, and paying addition in the other debts with high-interest rates.

.When considering a strategy to implement, go with the option that will be more convenient to adhere to till your debts are fully paid. For instance, you are not going to have that extra savings with the avalanche method if you stop midday .

If you have high-interest loans, focus on them first. Loans with high interest will make a huge drain on your finances more than the lower-rate ones.


What to Do If You Need Help

It is worth it considering the debt snowball method, however, sometimes you may need some assistance. Consider any of these:

Credit counseling

Credit counseling agencies can provide you with the required assistance you need in becoming totally debt-free. You can acquaint the agency with your situation and if necessary, you will be assisted with a debt management plan (DMP). This should help in lowering your monthly payments and interest rates, and also make your loan repayment easy.


Debt Settlement

This option is considered more extreme, unlike the credit counseling. Debt relief companies are available to help borrowers with outstanding debts consolidate or negotiate their balances. They’ll provide a payment model and may also help an individual file for bankruptcy based on a charge. Creditors must consent to the procedure and lenders are not likely to agree to your offer.

This option can deal badly on your credit score, so you may want to exhaust all your options before considering this.


In conclusion, the debt snowball strategy helps you gradually become debt-free by paying off your smallest balance first and then moving on to the bigger ones. It will always attract minimums on your debts but ensure to put any extra cash in your smallest debt first.

When compared with the interest rates that will be spared with the avalanche method, you are not likely to have a significant savings with the snowball method, but you’ll get the required motivation to keep pushing.

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