How To Get Out Of Debt With The Snowball Method

Updated: May 28, 2021

How do you pay off your debts, especially on your credit cards?

Do you spread your payments across them? Do you pay whichever calls or contacts you first or those who are persistent with their payment demands?

In the past, when I was still struggling with my finances, I discovered a debt reduction strategy that made it possible for me to eliminate my debt with ease – it’s called the snowball method.

You might have already heard about it, for many personal finance experts actually recommend this strategy.

The debt-snowball method allows you to eliminate your debt while incurring the least amount of interest fees in the process; at best – it fosters self-discipline and motivates you to take your finances seriously.

So how does the debt-snowball method work? Below are the basic steps.

debt-snowball

Debt-Snowball Step by Step

  1. List all your debts from smallest to largest balance.
  2. If two debts are tied in the amount, or is very close, put the one with the higher interest first
  3. Write down the minimum monthly payment required for each debt
  4. Budget your finances so you can pay the total minimum amount every month
  5. Then determine and commit an extra amount of income which you will add to your debt payments
  6. Each month, pay the minimum required to each debt BUT ADD the extra amount to the payment of the first debt on your list (the debt with the smallest balance)
  7. Do this until the first debt on your list is fully paid
  8. Next month after that, take the minimum payment from the first debt PLUS the extra amount you were paying and ADD it to the minimum payment required of the next debt on the list
  9. Repeat this process for each debt on your list until everything is paid

And that’s it! That’s how simple it is.

Still confused? Then here’s an illustrated example of how this works:

In the example, you committed to pay an extra 1,000 every month on top of the minimum required. And by using the snowball method, you’ll see that each debt gets paid faster and faster, with all debts paid by Month 24 (Credit Card C balance will be fully paid by that time).

Debt-Snowball Highest-Interest Method

The strategy described above is the traditional debt-snowball method. There is a variation to this strategy that promises to pay your debts faster with lower interest fees incurred.

Instead of paying from smallest balance to largest, you pay from highest interest to lowest. Thus, your list would look like this:

And the rest of the method is the same – you snowball your payments from one debt to another until everything is paid.

Which method is better?

I’d say the highest-interest method but only because it’s more financially smart mathematically. The traditional method of eliminating the smallest debt first gives “quick wins” which has psychological benefits.

Paying your debts is more than just about the money and the discipline, a good part of it is also having the motivation to cross the finish line. So whichever method works for you is fine as long as you persist and become free from debt.

Author’s Note:
Several assumptions were made in the examples above and the shown computations may slightly vary from real-life situations. This was done to make the presentation simpler for the readers. I believe that what is more important here is to understand how the method is done and why it works.

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Photo credit: kamshots

29 comments

  1. I’m a new reader of this blog. Definitely, it’s one of the best personal finance site. I think I already saw this method before while reading Robert Kiyosaki’s lessons. Thanks for providing a clear explanation to it.

  2. […] How To Get Out Of Debt With The Snowball Method: Try this method to get your debt under control. […]

  3. Hi. Just read this bit on credit card debt. And I do recognize these 2 methods you discussed and I realized I was already doing the latter — I am paying off my debt first on the card which has the higher interest rate.

    I have also tried doing balance transfers. With BT rates at 0.6% nowadays, I just figured it’s a good idea to transfer the balance of my credit card to another one, instead of paying the usual 3% (or more!) finance charges on one credit card. But it will spread the debt to around 12 – 18 months.

    What is your say on this? Do you think this is a good idea, too?

  4. I’m a new reader here and i find it very interesting, thank you for giving me new ideas, because right I’m struggling with my two credit cards and i want to be free of debts. I will try this snowball method soon. again thank you

  5. hello.

    right now, i am the breadwinner for a family of 5 and a monthly net income of 16k. i support my parents’s maintenance meds and lab tests of my mild stroke survivor father. we had credit cards (around 10 combined between me and my husband 🙁 ). before my father’s mild stroke last year, we had good credit standing with these cards but afterwards, we were not able to pay on time anymore even the minimum amount (my husband has to quit his job to take cake care of my father)..

    right now, we are paying 8 out of the 10 cards through a restructured arrangement program eventhough we can’t afford it..sometimes, i can’t quite get it how we were able to go on and how long will this last..tried looking for home-based jobs as well online selling of handcrafted accessories in order to earn extra income, but to no avail..

    too bad i’ve just read your blog just now..

    but still, if you can spare an advice or two with regards to our current situation, it would be greatly appreciated..

    thanks, godbless..

  6. We actually carry an electronic ( on a cellphone) as well as printed copies of both versions of the plan for distribution to others asking our advise on how to eliminate debt. I have always stated that “debt is like a demon spirit that will torment you until you cast it out and away from your life.”

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