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How to Use the Snowball Method to Get Out of Debt Quickly

Debt Snowball Method
Written by Irina Vasilescu

Let’s be honest. Most of us are in debt, and we regard the debt-free with a mixture of envy and curiosity. Would you like to be among them? Well, the Snowball method (or a hybrid based on it) could be just the thing for you. But how does it work, and what should you do to simplify your financial life by getting out of debt?

Before we begin, a small caveat. This system works best for debts with similar interest rates. If you have high-interest debt, then you might want to tackle that first – but it will also affect your snowball’s momentum. Weigh your options carefully.

The same goes for anything that’s overdue. It should head your list of priorities. Lastly, the snowball method assumes that you can spare a little money, so the way you budget and save money will affect how fast you can do it.

Snowballing your way out of debt

The first step is to take a closer look at your debt (something few of us like doing). You will need a list of all the debts you have and how much you still owe on them. There’s a great downloadable spreadsheet you can use to organise all the information. It also works as a calculator that you can use to test your snowball plan on. List everything and then sort your spreadsheet according to the value of the debt.

Check your minimum payments vs your household budget

Add up all the minimum payments you have to make every month. Now, compare it to your household’s running costs and your income. If you have no money to spare after doing your calculation, it’s time to take a closer look at your spending and find ways to save.

Pinpoint where you will begin

Part of the reason why the snowball method works so well is the fact that you can see results quickly. That keeps you motivated to save more and make even more progress. Research has found that people who use this method pay off their debt faster than those who don’t.

To get out of debt fast, you need to pay more than the minimum instalment. Choose your smallest debts first, and pay them off as fast as you can. For example, in your first month, you may eliminate one or more of your SMALLEST debts.

Keep snowballing it

Now that you’ve eliminated a couple of minor debts, you should be feeling motivated, so now it’s time to go on to the smallest of your remaining debts, putting in the same amount as last month plus the instalment you would otherwise be paying for the debts you destroyed in your first foray.

Don’t spread your extra money across all your debts! You’ll hardly notice that you’ve made a difference, and your snowball won’t grow. By using this method, you get to see that you’re making progress, and you’ll be eager to make even more progress in months to come. The longer you continue, the more extra money you will have to pay off debt – hence the “snowball” effect.

Why it works

Financial experts have done research on the snowball method and were surprised to find that people who used it really did pay their debt faster. Here’s why they think it works.

Just saying you’ll put any extra money you have into debts isn’t a plan, but the Snowball method forces you to make a simple but effective plan using concrete facts. When we have plans and goals and commit to them, we are almost sure to succeed.

By the time you start whittling away at the larger debts with your extra cash, you’ll have acquired a positive habit, and you’ll be keen to see those larger debts melt away like your smaller ones did. Every time you squash a debt, you feel a huge sense of achievement.

Can you take a break for a few months?

Paying off your debt faster by using the snowball method is a bit like dieting. The longer you can stick to it, the better your results will be. But there are times when you will need to take a break. Go easy on yourself when:

  • You’re preparing for a new baby to enter your life.
  • You become unemployed.
  • You have a significant medical expense looming on the horizon.
  • You need urgent repairs to your home or car.

Snowball hybrids

If you have a heavy debt with a big interest rate, you might want to try putting your focus here first because that interest is costing you money. Get the benefit of snowball motivation by tracking your progress and celebrating milestones. Break it up into some chunks and know how many of these chunks you have to pay before the debt is cleared.

However, the nice thing about snowballing is that you’ll be able to take the budgeted instalments for small debts that you’ve flattened and put them straight into bigger debts, so be aware that snowballing isn’t going to grow the amount you can put into tackling debt when you start near the top.

Remember where head to

Think about how cool it will be when you’re debt-free! Just owning everything you earn sounds like a luxury to those of us who are fighting to keep our heads above the water. Plan to succeed, and you will succeed!

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Debt Snowball Method

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About the author

Irina Vasilescu

Irina Vasilescu is our money-saving and DIY expert and also the editor-in-chief as she's always on the lookout for the latest online deals.

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