What is the debt snowball method and how does it work?

The debt snowball is a popular strategy to get out of debt. The success of paying off your smallest debt first can provide the confidence boost that you might need if you’ve been struggling with your debt load.

Here’s what to know about the debt snowball method and how it works.

What is the debt snowball method?

Best for: People motivated by small wins

The debt snowball method is a strategy for paying off debt where you focus on your smallest balance first. Once the smallest debt is paid off, you roll the amount you were paying into your next smallest balance — continuing down the line until you’re debt-free.

Paying off debt is more than just a set of steps to become debt-free as quickly as possible or save on interest. It’s also psychological, especially if this is the first time you’re trying to get out of debt. The snowball method excels at reinforcing positive behaviors, such as paying off small accounts as soon as possible to more easily visualize your progress.

Debt snowball: Step-by-step guide

If you're ready to get started with the debt snowball method, follow these five steps:

Step 1: List out your debts

First, list all of your debts (minus your mortgage, if applicable), along with their minimum monthly payments and interest rates. Here are some common debts that you might include in this list:

• Auto loans
• Buy now, pay later (BNPL) loans
• Credit cards
• Home equity loans
• Home equity lines of credit (HELOCs)
• Medical bills
• Personal loans
• Student loans

Step 2: Order your debts from smallest to largest

Next, reorder your list in order from smallest to largest balance. Your smallest debt will be the first that you’ll pay down with any extra funds.

Here’s an example of a repayment order list someone might make:

• Medical bill: $400
• Credit card: $800
• Personal loan: $2,000
• Student loan: $7,800
• Home equity loan: $15,000

Unlike other payoff methods (like the debt avalanche), you can ignore the interest rates on your debts — just concentrate on the balances. A notable exception to this is if you have two balances that are very similar. In this case, it’s best to focus on the one with the highest rate first to save money on interest.

Step 3: Keep making minimum payments on everything

As you focus on your smallest balance, keep making the minimum monthly payments on all of your other accounts. Along with keeping them current, continually making on-time payments can help strengthen your credit history.

Adding up these minimum monthly payments can also give you a good reference point for your monthly contributions. For example, say your minimum payments for each of your accounts adds up to $722. In this case, you can keep using $722 as your minimum starting contribution each month (instead of spending or saving the extra cash). You would just allocate the money a little differently as accounts get paid off.

Step 4: Put any extra $$ toward the smallest debt

Commit to putting any extra funds toward your smallest debt first. Even an extra $50 or $100 per month moves up your final payoff date and reduces your lifetime borrowing costs.

Look for anywhere you can free up cash to put toward your smallest debt. For example, you might cancel unused streaming subscriptions or travel less often. Periodically review your finances to see if you can cut down on unnecessary spending and increase your debt payments.

Step 5: Roll payments into the next-smallest debt

Once you’ve paid off your smallest balance, you’ll move on to the next-smallest debt. Whatever money you were putting toward that first balance can go to this next target.

Rolling your monthly payments to the next-smallest account is how the debt snowball gets its name: Initially, your progress starts small, but the momentum builds and builds after each account payoff.

Debt snowball example

Say you have $40,000 in total debt, and your minimum monthly payments add up to $722. Here’s what the debt snowball method could look like in action:

• List your debts. In this scenario, let’s say your total debt includes four types of accounts.
• Order your debts from smallest to largest. Taking these four accounts, you’ll list them from smallest to largest balance. In this example, the order will be medical bills, a credit card, a car loan, and student loans.
• Keep making minimum payments on everything. At first, you’ll pay the minimum monthly amount to each account — a total of $722.
• Put any extra money toward the smallest debt. You’ll make any extra payments you can toward your smallest balance (the medical bills) until it’s paid off. (Celebrate this moment, and use the excitement to recharge your desire to get out of debt!)
• Roll payments to the next-smallest debt. Once the smallest balance has been repaid, you’ll take the payments that were going toward it and roll them to the next-smallest balance on the list (the credit card). You’ll continue paying at least $722 per month, but you’ll allocate the funds to three remaining accounts (instead of the previous four). You’ll continue in this fashion until all of your accounts are paid off.

Debt snowball calculator

Using a calculator — like this one from The Financial Readiness (FINRED) program — can help you better visualize the debt snowball method. A calculator can also help you build a personalized payoff plan, see how quickly you can trim each account down to $0, and track your progress.

Find out: How to consolidate high-interest debt

Pros and cons of the debt snowball method

Here are the advantages and disadvantages of using the debt snowball method.

Debt snowball vs. debt avalanche

Another popular payoff method is the debt avalanche, which focuses on paying off your account with the highest interest rate first. Here’s a quick comparison to help you decide which is better for your goals.

Compare more: Debt snowball vs. debt avalanche: Which payoff method is better?