Debt doesn’t disappear by simply making those minimum monthly payments, “as you’re able to.”
Eliminating debt takes focused intensity, consistent momentum, and quite honestly, a righteous anger to free yourself from its suffocating grip.
If you have the passion to become debt-free, but lack the roadmap to get you there, then you can thank your lucky stars for the “debt snowball.”
Breaking down the debt snowball
The debt snowball approach is really as simple as its name. A snowball is built with a little bit of snow, and you keep adding more snow, and eventually, roll it along the ground to make the snowball grow. Start with a little, end with a lot.
Here’s how it works:
- Lay out all of your debts (except for a mortgage, if you have one) from the smallest to the largest balance, regardless of the interest rates. For most people, smaller balance debts include loans from family or friends, credit cards, or maybe even payday loans. Larger loans are typically things like private or federally-insured student loans, car loans, or a Home Equity Line of Credit (HELOC).
- Pay the minimum payments on each of the larger loans, while paying most aggressively on the smallest loan. Pay off all your non-mortgage debt from the smallest balance to the largest outstanding balance.
- Once you’ve paid off your smallest balance, move on the next smallest debt, while still only paying the minimum monthly payments on the remaining larger balances.
The money you were using to aggressively pay off the first smallest debt can be put towards the second largest balance, and then the third, and so on.
Why the debt snowball is effective
The debt snowball can work because it’s clear and straightforward. Alternative debt repayment approaches, like the “debt avalanche” method, place emphasis on interest rates, fees, and credit scores, rather than on debt balances.
However, a debt with the highest interest rate may also have a huge outstanding balance. Trying to pay that off first can be intimidating and overwhelming, and likely to cause the average person to lose motivation. Sad face.
By focusing your attention and intensity on the smallest balance, rather than the highest interest rate, you can get a quick win—a burst of encouragement as you see that first loan balance drop to zero. Progress is motivating, and that psychological reward can be really effective.
In fact, a recent study in the Journal of Consumer Research found that people who use the debt snowball method are more likely to succeed at getting out of debt, because the act of paying off a debt feels good and motivates you to keep going.
Lastly, eliminating debt also means getting rid of those pesky minimum monthly payment obligations hanging over your head. That means more cash to put towards your debt snowball, and ultimately a shorter road towards freedom from the stress and anxiety of debt.
Tried, tested, and true
Just three months after our wedding, my husband and I used the debt snowball to pay off the remainder of his student loan, and the outstanding balance on his two credit cards. Although it felt like a lifetime, from January to May 2016, we paid off a total of $15,000, and have been debt-free ever since. No joke.
The debt snowball may be simple in its approach, but let’s not lie—it’s difficult in its execution. But, if you’re willing to buckle down, do the work, put in the extra hours, and cut down on the frills that eat up your income, then the debt snowball can work for you. It all boils down to how badly you want it.
How badly do you want to be able to call the shots with your own hard-earned money, without seeing it go to the banks, or the credit card companies, or to the government? How badly do you want to be able to do what you want, when you want? Harness that feeling, and apply it. It won’t be easy, but it’ll be worth it.
Need some help getting started? Try this debt snowball calculator we found online.