How the Debt Snowball Strategy Works




The Debt Snowball is the one of the most most talked about methods of paying off debt. That's because it works. Although there's some disagreement about one of the basic premises of the Debt Snowball, it's recommended by recognized financial experts such as Dave Ramsey and The Motley Fool. The biggest point of argument is whether to start paying off the smallest debt first or the one with the highest interest rate.  This is a great debt elimination plan if you can afford more than the minimum payment or, at the very least, have no trouble making the minimum payment.  If you don't meet that criteria, then this isn't for you - look into credit counseling, debt settlement, or bankruptcy.

A brief argument for each method is at the end of this article so you can choose for yourself. I'll use the Motley Fool method. Although I see the merit in the Dave Ramsey method, I am in favor of paying off the debt with the highest rates first because it saves you the most money over time.

How the Debt Snowball Works

First, you list all of your debts, in descending order by interest rate, regardless of the balance (accounts with highest interest rates first).

Each month, apply the minimum payment PLUS the extra money you make available in your budget (the one with the highest interest rate). On all your other debts, pay only the minimum payment. Continue to do this until the first debt on the list is paid off.

Take the minimum payment AND the extra payment you were making on the first debt and add them to the minimum payment you've been paying on the second debt. Pay that amount on the second debt each month until it's paid off, then move on to the third debt. Continue to pay only the minimum payment on all debts except the one you're "snowballing."

Repeat this process until all of the debts are paid off.

To help you with this process, provide online Snowball calculators so you can see for yourself how the Snowball would work for you. This Snowball Calculator allows you to enter up to 20 debts and will show you which debts to pay off first, and the amount of the payments. Another Debt Snowball Calculator allows you to order your debt in several different ways to see you much you'd save under each method.

Many people have testified as to how well the Debt Snowball works. It just takes motivation.

The Two Methods of Using the Debt Snowball

Dave Ramsey and some others recommend listing your debts with the smallest balances first so you can get the emotional satisfaction of quickly crossing off a debt or two, in the hopes that this emotional satisfaction will keep you motivated. There's some merit in this approach but if you already know you are motivated to stick with the Snowball, you'll be better off using the method below.  

Other experts recommend listing your debts with the highest interest rate first so you can save the most money by reducing the debts that grow the fastest due to the interest added every month. There may be personal considerations that would motivate you to pay off another debt first, but in general you would follow the payment by highest interest rate method.


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