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Debt snowball method

Build on your previous success with this debt relief strategy.

Popularized by financial guru Dave Ramsey, the debt snowball method is a way to tackle your debts a little at a time. If you’re intimidated by how much you owe, this strategy allows you to celebrate small victories and build momentum toward a debt-free life.

How is the debt snowball method calculated?

The debt snowball method helps you pay down your debts in order of smallest to largest, snowballing your payments as you go. It’s designed to keep you encouraged. It tackles the smallest debts first — regardless of interest rates — so that you can close those accounts faster and have less looming over you. Follow these four steps to get started:

1. Determine how much you can spend on debt.

Create a budget that accounts for all of your spending, cutting out unnecessary expenses to increase the amount you have each month to put toward paying off your debt.

2. List your debts from smallest to largest.

Unlike the debt avalanche method, you only need to pay attention to the dollar amount of the loan or credit card — not the interest rate or overall cost. Although it may be less cost effective, the debt snowball strategy is designed to give you the confidence to keep going until everything is paid off.

3. Pay as much as you can toward the smallest debt.

After making the minimum monthly payments on all of your debts, put any extra money toward your smallest debt.

4. Repeat with the next-smallest debt.

Once that account is paid off, take the money you were using towards it and apply it toward your next-smallest debt. Keep the snowball rolling and continue paying off your smallest debts first until you’re completely free of debt.

The debt snowball method in action

Let’s take a look at an example: Jacob is a single man in his late 20s who’s spent the last few years building his career. He’s recently gotten into a position where he can dedicate an extra $85 a month toward his loans and credit card bills.

Since he’s overwhelmed by how much debt he has, he decides to use the debt snowball method to stay encouraged.

To begin, Jacob lists out his debts from smallest to largest.

DebtBalanceMinimum payment
Credit Card A$500$40
Personal Loan A$1,500$80
Credit Card B$1,600$80
Car Loan$6,000$120
Student Loan$14,000$345

After making the minimum payments each month, he puts the extra $85 he has toward his smallest debt: Credit Card A.

Once Credit Card A is fully paid off, he tackles his next-smallest debt, Personal Loan A, combining the money he was using to pay Credit Card A with what he is already paying towards Personal Loan A. Since he no longer has the $40 minimum payment for Credit Card A, he’s able to put an extra $125 a month toward paying down that loan.

He then repeats this process, paying off the next-smallest debt, until all of his credit cards and loans are fully paid off.

Compare solutions to pay off your debt

Name Product Interest Rate Loan Amount Loan Term Requirements Credit Score Link
goPeer Personal Loan
8.00% - 31.00%
$1,000 - $25,000
36 - 60 months
Recommended income of $40,000 /year
Min. credit score: 600
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Canada's first regulated consumer peer-to-peer lending platform offering unsecured loans. Connects creditworthy Canadians looking for a loan with Canadians looking to invest. goPeer strives to offer the most competitive interest rates. Apply in minutes and get a response within 24 hours.
SkyCap Financial Personal Loan
12.99% - 39.99%
$500 - $10,000
9 - 36 months
Min. income of $1,200 /month, stable employment
Min. credit score: 550
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An online lender offering unsecured personal loans to borrowers with a wide range of credit scores. Apply in less than 5 minutes and if approved, receive financing in as little as 24 hours.
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Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Min. income of $13,000 /year
Min. credit score: 500


Mogo offers a 100-day money-back guarantee. If you're not happy with your loan, pay back the principal and get your 100 days of paid interest and fees back.
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An online lender who aims for a hassle-free process through same-day unsecured loan approval and funding. Get a loan fast and track your credit score for free.
Loans Canada Debt Consolidation Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$300 - $50,000
3 - 60 months
No min. income or employment requirements
Min. credit score: 300
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LoanConnect Debt Consolidation Loan
5.99% - 47.42%
$500 - $35,000
12 - 60 months
No min. income or employment requirements
Min. credit score: 300
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LoanConnect is an online broker that matches borrowers to lenders offering debt consolidation loans in amounts up to $35,000. Get approved for multiple loan offers from different lenders, no matter your credit score.
Fairstone Debt Consolidation Loan
19.99% - 39.99%. Varies by loan type and province
$500 - $50,000
6 - 120 months
Able to make monthly repayments on your loan
Min. credit score: 560
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Consolidate your debt up to $20,000 for an unsecured loan and $50,000 for a secured loan.
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Compare up to 4 providers

Name Product Balance Transfer Rate Balance Transfer Fee Purchase Interest Rate Annual Fee Min. Credit Score Description
Scotiabank Value Visa Card
0.99% for the first 6 months (then 12.99%)
N/A
12.99%
$29
Min. recommended credit score: 660
Get a 0.99% introductory interest rate on balance transfers with a 0% transfer fee for the first 6 months. Apply by November 21, 2021.
BMO CashBack Mastercard
1.99% for the first 9 months (then 22.99%)
1%
19.99%
$0
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,000). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Tangerine World Mastercard
1.95% for the first 6 months (then 19.95%)
3%
19.95%
$0
Min. recommended credit score: 680
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
BMO Preferred Rate Mastercard
3.99% for the first 9 months (then 12.99%)
1%
12.99%
$20
Min. recommended credit score: 660
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
Tangerine Money-Back Credit Card
1.95% for the first 6 months (then 19.95%)
3%
19.95%
$0
Min. recommended credit score: 680
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
BMO Rewards Mastercard
1.99% for the first 9 months (then 22.99%)
1%
19.99%
$0
Min. recommended credit score: 725
Get a bonus of 10,000 BMO Rewards points when you spend $1,000 in the first 3 months. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO AIR MILES Mastercard
1.99% for the first 9 months (then 22.99%)
1%
19.99%
$0
Min. recommended credit score: 660
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash). Get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
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Compare up to 4 providers

Bottom line

The debt snowball method may not be the most cost effective way to pay off your debts, as it doesn’t take into account interest rates, but it can help keep you encouraged by giving you mini wins throughout the process.

Want to explore more options for tackling your debt? Check out our guide to debt consolidation here.

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