The Debt Snowball Method for Reducing Debt

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Paying off multiple debts at once is a daunting task, one that can overwhelm you if you let it. Visible progress is often slow, leading borrowers to feel defeated when they see minimal results from their repayment efforts. If you relate to the statements above, allow us to introduce you to the Debt Snowball. With Dave…

Paying off multiple debts at once is a daunting task, one that can overwhelm you if you let it. Visible progress is often slow, leading borrowers to feel defeated when they see minimal results from their repayment efforts.

If you relate to the statements above, allow us to introduce you to the Debt Snowball.

With Dave Ramsey’s method of consumer debt elimination, you get what’s missing from other debt repayment strategies: tangible results, momentum, and motivation to follow through.

Intrigued yet? Below we’ve outlined how the debt snowball method works and provided you with the tools to use it.

Now let’s get the figurative [snow] ball rolling to see how Ramsey’s strategy can work for you.

How the Debt Snowball Works

The Debt Snowball, which is featured prominently in Dave Ramsey’s Financial Peace University, assumes you are using a balanced budget and are dedicated to getting out of debt.

Starting a Zero-Based Budget

For the debt snowball method to succeed, you’ll need to work from a zero-based budget.

A zero-based budget is simple: Income-Expenses = Zero

In other words, every dollar you spend should match your income.

With a zero-based income, you know where all of your investments, purchases, and savings go monthly. It saves you time and avoids confusion, allowing you to focus on getting out of debt.

Here are Dave Ramsey’s simple steps to starting a zero-based budget:

  1. Start by writing down your monthly income. This amount should include everything you bring in.
    Bonus tip: Ramsey suggests factoring in savings and giving here because you’re far less likely to give and save down the line. It’s all about priorities, people.
  2. Then, write down your monthly expenses. This category includes everything from rent and utilities to phone bills, food, clothing, and spending money. Be specific!
  3. Next, include your seasonal expenses. We’re talking about vacations, holidays, and somewhat unforeseen costs like insurance premiums. Expect the unexpected!
  4. Now, pull in that equation above. Subtract your expense list from your income, and you should see a zero. If the subtraction didn’t give you $0, assign the leftover money somewhere.

Ramsey gives a wise piece of advice here:

If you don’t give it a name, it will be spent.

When every dollar has a job, you’ll have a clear idea of how much money you can put towards paying off your debt each month, letting you work quickly and effectively.

Steps to the Debt Snowball Method

Once your zero-based budget is squared away, you can start the rewarding process of paying off your debts with the debt snowball.

Here’s what you’ll need to do:

  1. List all your debts (excluding mortgage) from lowest balance to highest balance, regardless of interest rate. (Only consider interest rate when two balances are essentially the same, then list the highest interest rate first).
  2. Write down the balance and minimum payments.
  3. Make the minimum payment on each balance except the smallest balance, which you will pay extra on until it is eliminated. You will want to direct every available extra dollar you can find each month to this balance.
  4. Pay off lowest balance, then direct the funds you were paying on that balance to the next smallest balance.
  5. Repeat the process.

You can see how each minimum payment will be added to the previous payment, creating the snowball effect.

The Debt Snowball Paradox

Wait a minute? That doesn’t make sense! You aren’t paying off the highest interest rates first! It will take longer to repay your loans!

This is the most controversial feature of the debt snowball.

It’s true. All things being equal, you could pay down your debt faster by repaying your debt with the highest interest rates first.

But one of the main principles Dave Ramsey preaches is “personal finance is 20% head knowledge and 80% behavior.

By paying off your lowest balances first, you get quick wins, which creates momentum and motivation.

If your highest interest rate is also your highest balance, you will see a minimal improvement each month on your largest bill and little to no improvements on the remaining bills.

Conversely, if you eliminate a couple smaller bills quickly, you will not only see those bills eliminated (which is motivating!), but you will see a larger dent being taken out of your remaining bills each month as your payment snowballs into larger and larger monthly payments.

The Debt Snowball in Practice

Let’s take a look at an actual example of the debt snowball at work.

Imagine you have the three following debts:

  1. $500 medical bill ($50 payment)
  2. $3,000 credit card debt ($65 payment)
  3. $10,000 student loan ($98 payment)

According to the debt snowball method, you’ll make the minimum payments on everything but the medical bill, since it’s your smallest.

Now, let’s say you’re being thrifty and pick up some overtime at work, combining to give you $500 extra a month to put towards repayment. You can now pay $550 a month on the medical bill, comprised of the $50 payment and your extra $500. You’ll now have that debt paid off in a month.

What’s next? Take your $550 and put it towards your credit card debt.

With $615 (remember, you have $550 and the $65 minimum payment), you’ll pay it off in around four months.

2 debts down, 1 to go.

Now, you’re ready to conquer your biggest debt. You can put $713 a month toward your college debt, which means you’ll pay it off in a little over a year.

Because you prioritized and modified your money-managing behavior, you’ve knocked out over $10,000 of debt. It’s that simple.

Calculating Your Own Debt Snowball

That’s just one hypothetical situation. If you’d like to see how you can use the snowball method for your own debt-freeing purposes, try out our debt snowball calculator!

You can also create your own Debt Snowball by using paper and pencil, creating a spreadsheet with Excel or OpenOffice, using a free Excel Debt Snowball spreadsheet, or using a financial management software program like You Need a Budget, which helps you create a working zero-based budget and comes with a free debt snowball spreadsheet.

Deciding if the Debt Snowball Is for You

As with any finance-management method, there are pros and cons to the debt snowball method.

Below are some advantages and disadvantages to the debt snowball method, and some questions to ask yourself as you contemplate using this strategy.

Advantages of Using the Debt Snowball

  • Psychological advantage of quick wins.
  • Organized method for repaying your debts.
  • Encouragement for budgeting and cutting expenses.
  • Motivation to stay debt free.

Disadvantages of Using the Debt Snowball

  • Not the most effective method mathematically.
  • May cost more in interest rates in the long run.

The Deciding Factor

Ultimately, the decision of what debt-repayment strategy to use comes down to you and your tendencies.

Are you someone highly motivated by visible results who’s willing to put in some time, hard work, and savings to become debt-free? If so, the debt snowball method may be a solid choice.

Try out the resources above and take a look at our other articles on becoming debt free, and how paying off credit cards and debt affect your credit score to decide what works for you.


What are your thoughts on the Debt Snowball Method? Have you used it? Did it work for you? Sound off in the comments below.

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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. Jake says

    I agree with Kirk. I see no issue with leaving the HELOC open after paying the balance off with that superb bonus. The rate on the loan seems quite high, so I would look into lowering it, if that is possible.

  2. Michael Harr @ TodayForward says

    While the minimum monthly payment amounts would be great to have in making this decision, we can generally assume that the HELOC is amortized over a longer period than the auto loan which means the payment-to-balance ratio is higher for the auto loan than the HELOC. In light of this, would definitely have recommended paying off the auto loan first to cut out the highest interest rate first and free up more cash flow (double bonus!). From there, the HELOC would be next in line because of the interest cost, impact on financial security, etc. Student loans (assuming they’re of the federal variety) would be at the back of the bus because they have a low rate and this particular type of loan has a great deal more flexibility than a HELOC in the event of major financial distress (forbearance, forgiveness, etc).

    Regardless of payoff order, $15k in debt disappearing from one’s life is a great thing=)

    • Ryan says

      Kirk, good point. I was looking at it from the standpoint of avoiding the temptation for more debt, not the for using it as an emergency source of funds. For some people that is a fine line and should be considered on a case by case basis.

  3. K.C. says

    The take-away for me is the distinction Ryan makes between secured debt and unsecured debt. It is an important distinction to make when prioritizing the retirement of debt.

  4. Robert says

    I guess from the standpoint that you are making progress paying off debt and it can keep you motivated, this technique is good. However, I think you need to get the most bang for your buck, and approach debt like that.

    At the end of the day if this practice is what works for you, go for it.

  5. Derek says

    I agree – in general – with the concepts portrayed here and those that Dave Ramsey teaches. But the crux of this is, is the person getting out of debt paying diligent attention to the mathematics of it all.

    First, getting out of debt is always a great thing…as mentioned multiple times in previous comments. But I allude to a second principle, which DR common pops off with in his teachings is that ‘if we were good at the math, would we even be in this situation to begin with’ [my paraphrase]. If you know the consequences of interest, compounding, revolving, collateral, etc. – most people might give it a second thought before putting their financial future on the line.

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