What is Debt Snowball? Learn how the Debt Snowball method works

Darryl Bachmeier
Sep 2, 2020

Even with a credit snowball plan for you to focus on, you may wonder if you can ever pay off your debt. If your unsecured consumer loans - such as credit cards and personal loans - take more than five years to pay off, consider your options for debt relief.

Different decisions about actual or fictional numbers apply to the credit snowball system for solving credit problems. Mathematics says that if you use source numbers, the credit snowball system will take longer. It will also cost more than other debt-relief options, such as a debt consolidation loan or debt management plan.

What is a credit snowball system?

A credit snowball system is a five-step approach to debt reduction popularized by nationally integrated radio talk show host Dave Ramsay, which is a key to speed - not math - debt removal.

Start by listing all the credit card debts according to the amount you owe and paying off your smallest debt, moving up the ladder and getting rid of them all at once. You will have more success in retiring all debts. Successes on small loans will build confidence and lead to success against large loans. It takes the opposite, debt avalanche, more mathematical approach and really saves money.

Is Debt Snowball Right for You?

Using the credit calculator above will allow you to compare credit avalanche and credit snowball methods for your specific loans.

The avalanche pattern may be fast or cheap, but know for yourself: a plan you give up - even if objectively high - will fail. That is why it can be the right choice for many people, even if the low-performance credit snowball costs a little more over time.

What should you add to your credit snowball?

Now you feel like a cash pro. Your loan should be all non-mortgage loans in the snowball - the loan is defined as anything you owe anyone else. (Although your mortgage is technically a loan, we will not add it to the loan snowball.)

Examples of non-mortgage loans

  • Salary loans
  • Student loans
  • Medical bills
  • Car tips
  • Credit card balances
  • Home equity loans
  • Personal loans

How does credit snowball work?

Here’s a summary of how credit snowball system works by setting up a credit snowball strategy is easy and involves a few steps.


Make a list of your loans. Arrange them from the tiniest balance at the top of the list to the largest. When creating your listing, ignore interest rates, monthly fees and other credit features. Focus only on balance.

Pay the minimum

If you do not pay the required minimum for all of your loans and credit cards, you are liable to pay fees and penalties, which will damage your credit score. Pay extra for your smallest outstanding amount: Each month, put the extra money available towards your credit card or loan at the top of your list. Your goal is to pay that small balance first aggressively.

Build your success

After paying your smallest balance, skip it off the list and move on to the next smaller balance. Take everything you pay towards the smallest loan and use it for the next one on top of another minimum payment you were already making. When you finish paying off each debt, your total payment for the next one will grow bigger and bigger.

Repeat the formula

When you finish repaying the second loan, repeat that formula. The amount dedicated to repaying the small loan + the minimum down payment = total monthly payment - until all debts are cleared.

What are the advantages of the credit snowball system?

The primary benefit of the snowball system is psychological motivation. When you see debt disappearing, it increases the motivation to continue paying off debt. Even if you pay only a small outstanding amount, your confidence in the progress you have made grows.

This method will help you properly handle your finances and stress overall. By enabling you to concentrate on one debt at a time, the snowball system eliminates the worry of dealing with all of your debt at once.

Why debt snowball is the quickest way to get out of debt?

Of course, it may seem that making a loan with a higher interest rate makes more sense mathematically at first. Doesn’t this save you much money?

If you start with huge debts, you will not see drag for long. You may think you are not progressing fast and then run out before you finish losing steam. It is important to pay your loans in such a way that you are motivated until you clear them.

Getting quick wins, in the beginning, will set an island under you to pay off your remaining debts. Tap into that small debt first, and you will see the motivation to go the distance.

Bottom line

If you are a person who needs encouragement, loan snowball method may be the right solution. However, be aware that waiting to repay a high-interest loan can cost you thousands of dollars, and it will increase the time you spend on debt.

In the end, the only thing that is inevitable in paying off debt is that you have to be committed to the process. This means you will not be in debt overnight and you will not be out of debt overnight.

It does not matter how you work the numbers; it takes time and commitment to get there.

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