How to “Snowball” Your Debt: 3 Easy Steps

Written By Mary Beth Eastman
Last updated November 13, 2017

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Personal Finance
October 20, 2017

Simple. Thrifty. Living.

There are many effective ways to pay off debt, but one popular way is the snowball method. It involves paying off smaller loans first, and then applying previous payments toward the next-smallest form of debt. Here is how you can use the snowball method in three easy steps.

The first step in the snowball method is to document all your debt, listing the form of debt, balance and minimum payment. This can include student loans, mortgages, credit card debt, outstanding or overdue bills, personal loans, and medical debt.

Once you’ve compiled a master list of your debts, order them by amount, with the smallest loan at the top and the largest loan at the bottom. This is the order in which you’ll pay them off. Your list might look something like this:

  • Credit card: $790 balance, $50 minimum payment
  • Student loan: $12,200 balance, $240 minimum payment
  • Mortgage: $67,900 balance, $800 minimum payment

Make the minimum payments on all of your debts with the exception of the smallest one. On that debt (in this case, the credit card) make the minimum payment plus as large of an additional payment as you can until it’s paid off.

Even a small extra payment can go a long way. The majority of debt payments are applied toward interest, which means paying off the principal can take a long time. This is especially true with high-interest debt that comes with credit cards. This is what lenders want, because they make money off your interest payments. In the example above, even an extra 15 dollars per month toward the credit card balance can cut months off your payoff timeline.

Once you’ve paid off the smallest loan, add the monthly payment you were making on that loan to the monthly payment on the next smallest loan (the second on your master list). For example, if every month you were paying the minimum balance of your credit card loan ($50) plus an extra $15, you would apply that $65 total payment toward your student loan, paying $305 per month.

Later, once you’ve paid off the student loan, you’ll apply that $305 toward your mortgage, paying $1,105 per month. This aggressive payment method will save you save thousands on interest and empower you to pay off debt more quickly than making only the minimum payments.

If you’re struggling to pay off your debt, and have multiple loans or forms of debt, consider using the snowball method to pay off your debt more quickly.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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