Debt snowball method: pros and cons

The snowball boosts morale as you pay off debts, but it’s not the cheapest strategy

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Looking to pay off a mountain of debt as quickly as possible? You’re not alone. According to a 2023 study by Northwestern Mutual, the average American owes $21,800 in debt (not including mortgages). And 35% say they’re carrying close to or at their highest level of debt ever.

In order to pay off that level of debt, you’ll want to find a method that works for you both mentally and mathematically. The debt snowball method may not be the fastest or cheapest on paper, but its psychology-first approach may give you the morale boost you need to plow through the rest of what you owe.


Key insights

  • The debt snowball method involves paying off your debts in order of smallest to largest balance.
  • The main advantage of the debt snowball method is that it lets you pay off individual debts faster.
  • The downside is that, by prioritizing small debts over debts with higher interest rates, you may end up paying more in interest overall.
  • The snowball method is best for someone who is motivated by quick wins and/or feels overwhelmed or demoralized by other methods.

How does the debt snowball work?

The debt snowball method involves paying off your loans in order of smallest to largest outstanding balance until you become debt-free.

Here are the four steps to the debt snowball method:

  1. Make a list of your debts in order of smallest to largest outstanding balance. Don’t worry about the interest rate for now.
  2. Start making the largest payments possible on your smallest debt while making the minimum payments on your other debts.
  3. Once your smallest debt is paid off, start making the largest payments possible on your next smallest debt.
  4. Repeat until you’re debt-free.

The core idea behind the snowball method is to create quick wins that motivate you to keep saving and paying off debt. Rather than paying off the debt with the highest interest rate (also known as the debt avalanche method), you pay off the debt with the smallest balance first so that your total number of debts decreases faster.

“The debt snowball method prioritizes balances to pay off the smallest debt first,” said Christopher Stroup, a certified financial planner with Abacus Wealth Partners. “This has the advantage of building motivation by settling debts faster, allowing you to move on to bigger debts next.”

Debt snowball example

Let’s say you have the following non-mortgage debts to pay off:

  • $1,000 of personal loan debt with an annual percentage rate (APR) of 11%
  • $3,000 of credit card debt at 30% APR
  • $6,000 of auto loan debt at 12% APR
  • $15,000 of student loan debt at 5% APR

Traditional wisdom dictates that you should pay off the highest-interest balance first, which in this case would be your credit card debt. But under the debt snowball method, you’d knock out your personal loan debt first while making your minimum monthly payments on your other three debts.

If you can afford to put $500 every month toward repaying your first debt, you’ll pay off your personal loan in just over two months. Then, you’ll pay off your credit card debt in roughly six more months and your auto loan within another year.

After 20 months, you’ll have just one source of debt remaining: your student loan. At that point, you’ll have a lot more of your money freed up that you were using to repay your three other debts, allowing you to allocate more of your financial resources toward the student loan and repay it quickly.

» MORE: Good debt vs. bad debt

Advantages of the debt snowball

The benefits of the debt snowball method are mostly psychological. While it ends up costing more in interest in the long term, for some borrowers, the thrill of seeing their debts quickly disappear can be a more motivating factor.

Here are some of the main reasons why this method has become so popular:

  • It provides quick wins. Fully paying off a source of debt — even if it’s your smallest — may provide the motivation and stress relief needed to keep going.
  • It reduces your total number of debts. While the debt snowball method may not shrink your cumulative debt amount faster than the avalanche, it will reduce your total number of outstanding debts much faster, allowing you to check off a box mentally and financially.
  • It’s easy to set up. Setting up the debt snowball method is relatively easy. Just rank your debts in order of outstanding balances and automate minimum payments for all but the smallest one.

» MORE: How to negotiate credit card debt

Disadvantages of the debt snowball

The disadvantages of the debt snowball method are mostly mathematical, which is one of the reasons why many economists and financial experts prefer the debt avalanche method.

Here are some factors to consider before setting up your own snowball:

  • You could end up paying more interest. Unless your smallest debt is also the one with the highest APR, you’ll be temporarily deprioritizing your debt with the highest interest rate, which will result in you paying more total interest.
  • Becoming debt-free could take longer. Ignoring debts with the highest interest rates could cause your total amount owed to balloon and take longer to pay off.
  • It might actually demotivate you. If quick wins aren’t motivating enough to overcome the drawbacks mentioned above, the debt snowball method may not be a fit.
  • Your credit might get dinged. Fully paying off loans can temporarily lower your credit score by a few points. That said, continuing to make regular, on-time payments will build it back up.

» MORE: How to manage your money

Other ways to get rid of debt

The benefits of the snowball method are primarily psychological, and you may prefer a more practical method for paying off debt.

  • Debt avalanche: The debt avalanche method involves paying off your highest-interest debt first and working your way down from there. While it may not always result in quick wins, the debt avalanche can ultimately help you become debt-free faster while minimizing your total interest paid.
  • Balance transfer: If you have outstanding credit card debt, transferring your balance from a high-interest card to a 0% APR credit card can give you up to 21 months to make interest-free payments. The chief drawback is that there’s typically a balance transfer fee of at least 3%.
  • Debt consolidation loan: These are personal loans specifically designed to help people get out of debt. Interest rates, monthly payment amounts and repayment schedules are all fixed with debt consolidation loans, so they can make budgeting easier. However, you’ll need excellent credit to receive the best consolidation loan rates.
  • Debt management plan: If you sign up for a credit counseling service, you could enroll in a debt management plan (DMP). With a DMP, your credit counselor will help you create a payoff strategy and may even negotiate lower interest rates and reduced fees with your creditors.

» MORE: Should you get a personal loan to pay off credit card debt?

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    FAQ

    If you’re using the snowball method, which debt do you focus on first?

    The snowball method involves tackling the debt with the smallest balance first. The core idea is to knock out your debts in order of smallest to largest to create quick wins that motivate you to keep going.

    If two debts are the same amount, which do I pay off first with the snowball method?

    If two debts have identical balances, it’s best to tackle the debt with the higher interest rate first. This will save you money while also providing that quick win. In effect, it combines the principles of the debt snowball and debt avalanche methods.

    How can the debt snowball method help you pay off debt faster?

    Mathematically speaking, the debt snowball method does not help you pay off debt any faster. However, if the psychological benefits motivate you to pay off your debts more aggressively, it may be the “faster” method for you.

    Does the debt snowball really work?

    It depends. The debt snowball method’s intended purpose is to motivate you to pay off your debt through quick wins. If the more practical debt avalanche method feels slow and demoralizing (even though it’s technically faster), the debt snowball method might provide a spark of motivation to keep going.

    Bottom line

    The debt snowball method involves paying off your smallest debt first instead of the debt with the highest interest rate (aka the debt avalanche method).

    While it may cost you a little extra time and interest in the long run, knocking out a small loan and never having to think about it again may provide the motivation and stress relief to keep repaying your debts until you’re debt-free.


    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Northwestern Mutual, “ Northwestern Mutual Study Finds Americans Who Carry Personal Debt Owe an Average of $21,800 Exclusive of Mortgages .” Accessed Sept. 6, 2023.
    2. Ramsey Solutions, “ How the Debt Snowball Method Works .” Accessed Sept. 6, 2023.
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