Smart Cents with Shaye

Conquering Debt: The Power of the Debt Snowball Method

What is the Debt Snowball Method?

The debt snowball method is a strategy where you pay off debt in order of smallest balance to largest balance, regardless of interest rate. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment.

Here’s how the debt snowball works:

1. List your debts from smallest to largest.
   • Write down all your debts and their balances.
   • Don’t worry about the interest rates at this stage.
2. Make minimum payments on all your debts except the smallest debt.
   • Keep your accounts in good standing by making the minimum payments on all debts.
3. Throw as much money as possible on your smallest debt until it’s paid off.
   • Focus all your extra cash on eliminating the smallest debt first.
4. Take what you were paying on your smallest debt and add that to your payment on the next-smallest debt until it’s paid off.
   • This cumulative payment approach helps accelerate debt reduction.
5. Repeat until each debt is paid in full and you’re completely debt-free.
   • Keep rolling your payments into the next debt until all are eliminated.

As you pay off your debts one by one, the amount of money you have to throw at the rest of your debt grows, like a snowball rolling down a hill. This can be the best motivator, watching your debts go one by one.

Why I Love the Debt Snowball Method

I have written blog posts on the 50-30-20 Rule and Value-Based budgeting methods. However, the Snowball method is my favorite because that is the method we chose to use while paying off our debt in 2017. The motivation of seeing the debts go away was all I needed to keep going. We had a few small credit card balances that were paid off quickly, so when I took that payment amount and added it to the next debt, the money started growing or rolling like a snowball. Ha Ha! The snowball gains momentum just like you do when you pay each debt off.

Why Does the Debt Snowball Method Work?

1. You get excited when you pay that first debt off.
   • The satisfaction of eliminating a debt gives you a psychological boost.
   • This excitement propels you forward to tackle the next debt.
2. Your mindset shifts.
   • Successfully paying off debts helps you believe in your ability to achieve financial freedom.
   • It instills discipline and focus on your financial goals.
3. The Snowball method forces you to change your ways.
   • By focusing on debt repayment, you naturally start cutting unnecessary expenses.
   • It encourages healthier financial habits over time.
4. You focus on one debt at a time, the smallest.
   • This targeted approach reduces feelings of being overwhelmed by multiple debts.
   • You can see tangible progress quickly, which keeps you motivated.

Additional Tips for Success with the Debt Snowball Method:

• Track Your Progress: Use a debt payoff tracker or app to visualize your progress. Seeing your debts decrease can be very motivating.
• Celebrate Milestones: Reward yourself in small ways when you pay off each debt. This could be a simple treat or a fun, low-cost activity.
• Stay Disciplined: Avoid adding new debts while you’re working on the snowball method. Keep your focus on eliminating existing debts.
• Build an Emergency Fund: Before diving into debt repayment, ensure you have a small emergency fund to cover unexpected expenses. This prevents you from relying on credit cards.

Some say the Snowball method works because it’s based on psychology, not math. The momentum you gain from paying off that first debt propels you forward, building confidence and a sense of accomplishment. This psychological boost can be incredibly powerful and help you stay committed to becoming debt-free.

Be sure to read my blog posts on 50-30-20 Budget Rule and Value Based budgeting and let me know which one you will try.

Here is a copy of a Snowball Tracker you might like. I am also induing a Monthly Budget Planner. These are both google sheets.