Debt Snowball
A debt repayment strategy that targets the smallest balance first while paying minimums on larger debts, prioritizing momentum over total interest savings.
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The debt snowball is a debt repayment strategy where you pay minimums on every debt and direct any extra payment toward the smallest balance, regardless of interest rate. Once the smallest debt is gone, you roll its full payment amount into the next-smallest, and so on. The method, popularized by Dave Ramsey, prioritizes psychological wins over mathematical optimality.
How it works
List every debt with its balance, minimum payment, and interest rate. Sort by balance, smallest to largest. Pay the required minimum on every debt to stay current. Direct every available extra dollar at the smallest balance until it is gone. When that debt is paid off, take the entire payment that was going to it (minimum plus extras) and add it to the next-smallest debt’s payment. The “snowball” gets bigger as each debt falls, accelerating payoff of larger balances later in the sequence.
Why it matters
Mathematically, the avalanche method (highest rate first) saves more interest. Behaviorally, the snowball wins for many people because eliminating an entire debt is a powerful motivator. Crossing a debt off the list, closing an account, watching the number of open debts shrink: these are visible milestones that sustain momentum across the months and years debt payoff often takes. For people whose past attempts have stalled, the small extra interest cost is usually worth the higher completion rate.
Example
You have four debts: medical bill $400 at 0%, store card $1,200 at 21%, credit card $3,500 at 18%, car loan $9,000 at 6%. Total minimums: $310/month. You have $250 extra per month for debt. The snowball directs all $250 at the medical bill, paid off in two months. That $250 plus the freed-up payment then attacks the store card, which falls in roughly four to five months. Each kill makes the snowball larger and the remaining debts fall faster.
When to use it
- Past debt payoff attempts have stalled from lack of visible progress
- You have several small debts and want quick wins
- You are motivated more by momentum than by optimization
- The interest rate spread between your debts is small
- You want a simple, sortable plan that does not require recalculating