What is the Debt Snowball Method?
The Debt Snowball method is a debt reduction strategy popularized by personal finance expert Dave Ramsey. It involves paying off debts in a specific order, not based on the interest rates of the debts, but rather on their balances. Here's how the Debt Snowball method works:
1. List your debts. Credit cards, loans, and other outstanding balances. Arrange them from the smallest balance to the largest.
2. Continue making the minimum payments on all your debts.
3. Allocate any extra funds you have for debt repayment to the smallest debt on your list. Pay as much as you can afford on this smallest debt while maintaining minimum payments on the others.
4. Once the smallest debt is paid off, take the money you were using for its repayment (including the minimum payment) and apply it to the next smallest debt. This creates a snowball effect, as the amount you can put toward each debt increases with every one you pay off.
5. Repeat this process until you've paid off all your debts. As you move through the list, the amount you can apply toward larger debts grows, helping you tackle them more efficiently.
The Debt Snowball method is known for its psychological benefits. By focusing on smaller debts first, individuals experience a sense of accomplishment and motivation (you get motivated by achieving quick wins), building momentum for the larger debts. While it may not be the most financially optimal strategy in terms of interest saved, it can be effective for those who find motivation and encouragement crucial in their debt repayment journey.
Pros & Cons
Pros
Cons
Is it suitable for you?
The answer is YES, if you
- like celebrating small victories to stay motivated while paying off debt.
- believe that emotions play an important role in managing both spending and saving, especially when tackling debt.
- are inclined to remain dedicated to a plan when tangible progress is visible sooner in the process.
Start today by paying off your debts early. Every payment you make brings you one step closer to a debt-free, stress-free future.
Written by:
Marissa
Starting with the smallest debt provides quick wins, building motivation and momentum to tackle larger debts.
The Debt Snowball method may result in higher overall interest costs as it prioritizes emotional wins over minimizing interest rates.
The timeline varies, but individuals often experience tangible progress and increased motivation within the first few months of using the Debt Snowball method.
Finance Tools You Need
Calculate your monthly income, expenses, and how much you have left.
Our printable Debt Snowball worksheet will help you effectively track and manage your debts.
About me
Hi there 👋 My name is Marissa, I'm the maker of This Blog. I am always excited to manage my finances for stability and would love to share and help you achieve a stress-free financial journey. :)
