The Debt Snowball Method Makes Paying Off Debts Feel Good

May 30, 2022

I Love the Debt Snowball Method!

It makes me feel all warm and fuzzy inside every time I can scratch a debt off of my IOU list. Most people feel the same. It is like getting weight off of your shoulders. You can finally breath again. The Debt Snowball Method capitalizes on this natural feeling. It uses psychology to aid us in achieving our goals.

What is the Debt Snowball Method?

The Debt Snowball Method is a debt reduction strategy that focuses on paying off the smallest debts first. It is best known for being a motivational tool to becoming debt free. Dave Ramsey is one major supporter of the Debt Snowball Method. He says that personal finance is “20 percent head knowledge and 80 percent behavior” and that people trying to reduce debt need “quick wins” to stay motivated toward debt reduction. I am a major supporter of Dave Ramsey! He has his stuff together and does an amazing job of teaching others. Because personal finance has so much to do with behavior and feeling good, the debt snowball method is a great motivator. It uses positive reinforcement to keep you paying down your debt.

 Who Should Use the Debt Snowball Method?

Debt snowball method
The Debt Snowball method is great for those with multiple credit cards.
  • People who have multiple credit accounts with outstanding balances.
  • People who have large balances on some debt and small balances on others.
  • People who are not very motivated to pay off debt, or are feeling discouraged.
  • People who are tired of having multiple payments and are thinking of consolidating their debt.

How Does the Debt Snowball Method Work?

Step 1: Identify your debts.

Make a list of all your debts in order from the smallest balance to the largest balance. Include the name of the debt, the balance, the minimum payment and the due date. For the typical person, there is no need to list the interest rate unless you have two debts with the same balance. If this is the case, list the debt with the higher interest rate out of the two first. If you many different accounts, you may want to print this Consumer debt manager worksheet.

Step 2: Determine how much extra your budget allows.

Create a budget including all of your bills and all of your income. Make sure the minimum payment on your debts is included in your bill count. Determine how much money is left over from your budget, that is available to pay as extra toward your debts, once all bills are paid. Even if it is only 20 dollars, it will add up and be useful. You can use this Personal monthly budget to make sure you don’t miss anything.

Step 3: Make the minimum payment on all of your debts.

Make sure that you are still making your minimum payments on all of your debts. You don’t want to add anything to your balance because of missed payments or late fees. But, you do not want to pay anything more than the minimum on any debt, other than the debt with the smallest balance. You want to focus everything extra you have on that debt.

However, I do not suggest changing your payment every month to match what your bill says. Look at what your minimum payments are now and continue to pay no less than that amount. Credit cards get you when you owe $2000 and your minimum payment is $20. The more you pay towards that debt, the lower your minimum payments goes. Many times, your minimum payment is less than the amount of interest you are being charged. (More on this in another post.)

Step 4: Pay the extra toward the debt with the smallest balance.

When you are making your payments, add the extra amount from your budget to the payment you make on your lowest balance debt. This should be in addition to the minimum payment. Keep doing this every month until the smallest debt is paid off.

Step 5: Move on to the next smallest debt.

Once you have paid off the lowest balance debt, you will want to repeat steps 3 and 4 using the next debt on the list. But, now that you no longer have the minimum payment for the debt you just paid off, you can put that amount towards the next debt as well. This is what creates the snowball effect. Every time you pay a debt off, the money used for its minimum payment can be combined with the previous one to make a larger payment. This is the momentum you create that encourages you to keep going. It gets easier and easier to pay off each debt as your payment available grows.

Step 6: Repeat.

Repeat steps 3, 4 and 5 until all of your debt is gone. Congratulations, you’re debt free. Now, focus on staying debt free or just using credit wisely.

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