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Using the debt snowball method to pay off debt

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A debt repayment plan for people who get overwhelmed by debt repayment plans.

The debt snowball method, invented by personal finance expert Dave Ramsey, is a plan to help you stay motivated while you pay down your debts — but not all experts agree that it’s the best idea.

What is the snowball method?

The debt snowball method is a debt reduction strategy based on the idea that you should pay your smallest debts first and then work your way up to the bigger debts. For it to work, you need to be able to afford the minimum monthly payment for all of your debts, plus extra to pay down one at a time as quickly as possible.

Once you’ve paid off your first debt, you should use that extra money to pay off the next smallest and so on and so forth. Each time you pay off one debt, it “snowballs” and leaves you with more money to spend on the next. Paying off your smallest debts first can have a motivating psychological advantage as you to continue on the path toward a debt free life.

How does it work?

Let’s say you have $5,000 worth of debt spread out over four credit cards:

  • Card 1. $2,000
  • Card 2. $1,500
  • Card 3. $1,250
  • Card 4. $250

You start by paying a minimum monthly payment of $35 on each card, plus an extra $60 a month on Card 4. At $95 a month, Card 4 will be paid off pretty quickly — then you can add the money that had been going to Card 4 to your monthly payment for Card 3.

You continue paying the minimum payments on Card 1 and Card 2 until Card 3 is paid off, and then you focus on Card 2. By the time you get to Card 1, you’ll be paying $200 a month on that one card and can quickly pay it down with no other debts to focus on.

Is the debt snowball method right for me?

The snowball debt method is one of the easiest payment plans for people with multiple debts, and it’s especially useful for people who have trouble staying on top of their debts or making more than the minimum payments. Even just $10 more than the minimum can add up once you fully pay off your first debt.

However, it’s not the cheapest option. Some have criticized the method for encouraging people to pay off small debts first, leaving interest to accrue on larger debts. Other common methods include paying off the debt with the highest interest rate first, known as the debt avalanche, or paying off the biggest debt first. These methods may save you money in the long run, but ultimately you’ll want to choose the plan that you know you can stick to.

Bottom line

If you need a plan that can get you out of debt while keeping you motivated along the way, the debt snowball method could be the right one for you. Although, you may end up paying more than necessary – as opposed to alternative strategies that prioritize larger debts and ones with higher interest.

But if you’re feeling overwhelmed by your debt, or is simply looking to consolidate your debt into one monthly payment, you should explore other options.

Frequently asked questions

Images: Shutterstock

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Jeremy Cabral

Jeremy is finder's Global Head of Publishing & Editorial. Jeremy has been with finder since the very beginning and is part of the founding team working closely with Fred and Frank to build finder.com into the comparison network it is today.

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