What Is The Debt Snowball Method?

Tips for paying off debt with Dave Ramsey’s Debt Snowball.

Are you trying to pay off debt, but have no idea where to even begin??? First, you should know that you are not alone! According to Debt.org, the average American has over $90,000 worth of debt. This amount includes all debts, such as home mortgages, credit card debt and student loans. But, there is hope! You can become debt free! It isn’t easy, but it is possible. There are many tried and true methods for paying off debt, and one that I personally recommend is The Debt Snowball method. I’m excited to share all about Dave Ramsey’s debt snowball in this article.

What Is The Debt Snowball?

The Debt Snowball method was first made popular by finance expert, Dave Ramsey and focuses on both the psychology and financial parts of paying off debt. I love that it was designed as a way to help you gain confidence with paying off debt. The idea is that as you pay off your smaller debts first you will become more excited and motivated to pay off the larger ones, which in turn helps you see more success.

How To Pay Off Debt Using The Debt Snowball

Alrighty, let’s get into the debt snowball nitty gritty! The steps are simple really!

Step 1: List debts in order of smallest to largest.

This first step to using the debt snowball is to make a list of all of your debts and put them in order from the smallest amount owed to the largest amount. Remember, the interest rates of each debt does not matter, only the least amount owed.

This is the part when many people get confused. It doesn’t always make sense financially to ignore the interest rates, but remember that the debt snowball is about psychology and finances! The debt snowball is trying to help grow your confidence and motivation. Choosing to pay off your smaller debt first motivates you to keep working towards debt freedom.

For Example

Here is an example of what your debts might look like when making your list:

$800 Credit Card with 7% interest
$5,000 Car Loan with 5% interest
$25,000 Student Loan with 15% interest

Step 2: Pay extra on your smallest debt, while continuing to make minimum payments on other debts.

Now that you have put your debts in order from smallest to largest, it’s time to start paying them off.

If we use the above example of debts, that would mean that you would try to pay off the credit card debt first, because it has the smallest amount owed.

~~$800 Credit Card with 7% interest~~
$5,000 Car Loan with 5% interest
$25,000 Student Loan with 15% interest

Keep paying the minimum payments on all other debts, but try to put ANY extra money that comes your way to paying off this first debt. The more money you can throw at this debt, the sooner you will be able to pay it off and move to the next debt on the list.

A few ways you can find extra money to pay off your debt include:

Starting a side hustle to earn more money
Cutting a few items out of your budget

Related: 101 Ways To Save More Money

Step 3: Pay extra on next smallest debt, while continuing to make minimum payments on other debts.

Once your smallest debt is paid off, it’s time to move to the next debt on your list. You will now focus on paying off debt #2, while paying the minimum payment on all other debts.

This is where the “snowball” effect starts to happen! To pay off debt #2 you will use all of the extra money you were paying towards your first debt and the minimum amount you were already paying for this loan.

For Example:

$800 Credit Card with 7% interest: Paying $200/month
$5,000 Car Loan with 5% interest: Paying $100/month
$25,000 Student Loan with 15% interest

Again, referring to the debt examples from above, the next smallest debt will be the car loan. You were paying $200 to the credit card and $100 to the car loan each month. Combine these totals together to pay $300 each month towards the car loan. You are officially “snowballing!” Yay!

Step 4: Repeat step 3.

Continue to repeat step 3 until all of your debts are paid off. You got this!!!

Step 5: Celebrate!

Once you have paid off all debts it’s time to celebrate! Yes! Celebrating your debt freedom is a very important part of the debt snowball method!

Paying off debt is NOT an easy task, it takes a lot of hard work, patience, and sacrifice. You deserve to be celebrated for this huge effort! Go out to your favorite restaurant, invite some friends over, or do something that makes you happy!

Pros of the Debt Snowball Method

There are so many wonderful benefits to using the debt snowball when paying off debt.

The debt snowball:

Motivates you as you watch the small debts disappear quickly.
Builds confidence as you find success with paying off your smaller debts,
Is simple and easy to implement.

Cons Of The Debt Snowball Method

While, I do love the debt snowball and highly recommend it, it does come with one big con.

The biggest con to using the Debt Snowball is that there is a possibility you will end up having to pay more money on debts. This is all because you aren’t paying off the debt with the highest interest first.

If you choose to pay off a debt with only 2% interest and wait to pay off the debt with 15% interest, you are having to pay that extra interest rate longer, making it cost more in the long run.

This big con doesn’t make sense for a lot of people, and that’s ok. Not everyone needs the psychology that the debt snowball offers. Personal finance is personal, and if you need to adjust debt payoff methods to make them work for you, do it!

Is The Debt Snowball Right For you?

The debt snowball method is for you if:

You are trying to pay off debt.
You keep losing motivation with your debt free journey.
You need an easy to follow and understand debt free method.

Let me know if you any other questions about this debt payoff method. I’m always happy to answer them in the comments or through a message! It won’t be easy, but I promise your hard work and effort will be worth it! There is no better feeling than that debt free feeling!

What Is The Debt Snowball Method?

Tips for paying off debt with Dave Ramsey’s Debt Snowball.