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Pay Off Debt Fast: The Debt Snowball Method

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The Debt Snowball Method Explained

Debt can often feel like a heavy weight tied to your financial well-being, dragging you down and making it hard to move forward toward your financial goals. Among the strategies to manage and pay off debt, the Debt Snowball Method stands out for its simplicity and psychological wins. Let’s break it down into an easy-to-understand guide, emphasizing its importance and practical applications with examples to make everything clearer.

What is the Debt Snowball Method?

The Debt Snowball Method is a debt reduction strategy where you pay off your debts from smallest to largest, regardless of interest rate. By focusing on the smallest debt first, you quickly see progress, which can boost your motivation and momentum—like a snowball rolling down a hill, gathering size and speed.

Why it Works: The Psychology Behind the Method

The beauty of the Debt Snowball Method lies in its psychological benefits. Paying off smaller debts first provides quick wins, making it easier to stay motivated. It’s not just about numbers; it’s about feeling empowered and seeing tangible results quickly. This method turns the daunting task of debt repayment into a series of achievable milestones.

How to Implement the Debt Snowball Method

  1. List Your Debts: Start by listing out all your debts from smallest to largest by the total amount owed, not including the mortgage. Ignore the interest rates for now; just focus on the balance.
  2. Make Minimum Payments on All Debts Except the Smallest: Pay the minimum amount on all your debts to avoid penalties. Then, focus any extra money you have on the smallest debt.
  3. Attack the Smallest Debt with Vigor: Put as much money as you can into paying off the smallest debt. Cut back on non-essential expenses or find ways to increase your income to free up more money for debt repayment.
  4. Roll Over Payments to the Next Debt: Once the smallest debt is paid off, take the amount you were paying on that debt and apply it to the next smallest debt, in addition to its minimum payment. This increases your payment on the next debt, helping you pay it off faster.
  5. Repeat and Keep the Momentum Going: Continue this process, rolling over payments to larger debts as you pay off each smaller debt. Your payment amounts will grow, just like a snowball rolling downhill, helping you pay off each subsequent debt more quickly.

Example in Action

Imagine you have four debts:

  • Credit Card A: $500 with a minimum payment of $25/month
  • Loan B: $2,000 with a minimum payment of $50/month
  • Credit Card C: $1,000 with a minimum payment of $30/month
  • Loan D: $3,000 with a minimum payment of $75/month

You start by paying off Credit Card A first, while still making minimum payments on the others. Once Credit Card A is paid off, you add its $25/month to the $30/month you were already paying on Credit Card C, so you now pay $55/month towards Credit Card C until it’s paid off, and so on.

The Benefits of the Debt Snowball Method

  • Quick Wins: Paying off smaller debts first provides a sense of accomplishment and encourages you to keep going.
  • Improved Cash Flow: Each debt paid off frees up more money to put towards the next debt.
  • Simplified Debt Management: Focusing on one debt at a time makes your financial situation easier to manage.

The Debt Snowball Method is a powerful tool for anyone looking to take control of their financial situation and work their way out of debt. It’s more than just a strategy; it’s a journey toward financial freedom, filled with achievable milestones and tangible progress. By understanding and applying this method, you can transform the way you handle debt, turning a daunting challenge into a series of victories. Let’s start rolling that snowball and make your path to debt freedom a reality!

Alternatives to the Debt Snowball Method

Here are three alternatives to the Debt Snowball Method, how they work, and if they may be a good choice for you.

Debt Avalanche

  • Focus: Highest Interest Rates First
  • How It Works: List your debts from highest to lowest interest rate. Pay the minimum on all your debts, but allocate extra payments to the debt with the highest interest rate. Once it’s paid off, move to the next highest rate.
  • Benefits: Saves money on interest over time, potentially shortening the debt repayment period.
  • Ideal For: Those who are motivated by logical, cost-effective strategies and can stay motivated without immediate wins.
  • Learn more about the Debt Avalanche Method.

Debt Cascade

  • Focus: Blending High Interest and Small Balances
  • How It Works: A hybrid approach that involves paying off high-interest debts while also targeting smaller balances that can be quickly eliminated.
  • Benefits: Balances the psychological benefits of the Debt Snowball with the interest savings of the Debt Avalanche.
  • Ideal For: Those who seek a balanced approach, appreciating both the emotional wins and the logical efficiency in their debt repayment strategy.
  • Learn more about the Debt Cascade Method.

Debt Landslide

  • Focus: Newest Debts First
  • How It Works: Focus on paying off the most recently acquired debts first, while maintaining minimum payments on older debts. This strategy is based on the theory that newer debts might have a more significant psychological burden.
  • Benefits: Can improve credit score quickly by addressing potentially higher-rate, newer debts and reducing the overall credit utilization ratio.
  • Ideal For: Individuals who have recently taken on new debt at unfavorable terms and are looking to quickly improve their financial situation and potentially their credit score.
  • Learn more about the Debt Landslide Method.

Each of these strategies offers a unique approach to debt management, allowing individuals to choose a path that best suits their financial habits, psychological needs, and ultimate goals. Whether you’re looking for the quickest psychological boost, the most efficient interest savings, a balanced method, or a way to improve your credit score rapidly, there’s a strategy designed to guide you toward financial freedom.

About the Author

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Todd Christensen

As the education manager for Money Fit, author, speaker, and financial educator, Todd Christensen develops financial education programs and provides credit and debt counseling for individuals and groups around the country. In 2014, Todd published his first 5-star-rated book, Everyday Money for Everyday People based on stories and ideas he had heard in nearly 1,000 workshops he facilitated on budgeting, credit, debt reduction, saving, and identity protection.
Visit Todd Christensen's Page
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NOTE: This sheet is to inform new or returning clients about our services, records, fees, and limitations that may affect you as a consumer of our services. This form also discloses how we might release your information to other agencies and/or regulators. If you do not understand a statement, please ask a Debt Reduction Services (DRS) counselor for assistance.

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Debt Reduction Services, Inc. complies with the privacy requirements set forth in the HUD housing counseling agency handbook 7610.1 (05/2010), including the sections 2-2 Mc, 3-1 H(2), 3-3, 5-3 F, and Attachment A.5. At all times, we will comply with all additional laws and regulations to which we are subject regarding the collection, use, and disclosure of individually identifiable information.

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Debt Reduction Services, Inc. and its financial education arm, Money Fit by DRS, offer the following housing counseling and educational services related to housing, personal finance, and bankruptcy certificates to consumers:
  • Housing Education Courses: DRS offers many online self-guided education programs classified as Financial, Budgeting, and Credit Workshops (FBC), Fair Housing Pre-Purchase Education Workshops (FHW), Homelessness Prevention Workshops (HMW), Non-Delinquency Post Purchase Workshops (NDW), Predatory Lending Education Workshops (PLW), Pre-purchase Homebuyer Education Workshops (PPW), and Rental Housing Workshops (RHW). These courses help participants increase their knowledge of and skills in personal finance, including home affordability, budgeting, and understanding the use of credit, as well as predatory lending, loan scams, and other fraud prevention topics, fair housing, rental topics, pre-purchase homebuyer education, non-delinquency post-purchase topics including home maintenance and/or financial management for homeowners, homeless prevention workshop, and other workshops not listed above relating to personal finance and housing. Course details are found below under “Housing Workshops.”
  • Home Equity Conversation Mortgage (HECM) Counseling (RMC): Via telephone and virtual platforms, we offer the required HECM counseling nationwide in addition to in-person counseling in Boise, Idaho. We also offer in-home counseling options in thirty counties across southern Idaho for an additional fee to cover our travel and additional staff time costs.
  • Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase) (FBC): Clients receive counseling and materials on the proper maintenance of their home and mortgage refinancing. Clients can find help and resources by phone, in our Boise office, or virtually on all topics related to stabilizing their long-term homeownership.
  • Services for Homeless Counseling (HMC): Clients receive phone, virtual, or in-person (Boise) counseling to evaluate their current housing needs, identify barriers to and goals for housing stability, establish a path to self-sufficiency, and connect with emergency shelters, income-appropriate housing, and/or other community resources (e.g. mental healthcare, job training, transportation, etc.).
  • Pre-Purchase Counseling (PPC): Clients receive counseling through the entire homebuying process. Assistance may involve creating a sustainable household budget, understanding mortgage options, building their credit rating, and putting together a realistic action plan to set and achieve homeownership goals.  Additionally, clients will receive materials and resources about home inspections and other homeownership topics relevant to successfully maintaining a home.
  • Rental Housing Counseling (RHC): Via phone, in-person appointments (Boise, ID), or virtual platforms, clients receive housing counseling relevant to renting, including rent subsidies from HUD or other government and assistance programs. Topics can also address issues and concerns having to do with fair housing, landlord and tenant laws, lease terms, rent delinquency, household budgeting, and finding alternate housing.
DRS also offers the following services:
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  • A Student Loan Repayment Plan Counseling and application service.

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Through such services, DRS has established financial relationships with hundreds of banks, credit unions, and creditors such as American Express, Bank of America, Barclays, Capital One, Chase, Citibank, Credit One, Discover, Synchrony, US Bank, USAA, Wells Fargo, and others.

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The client is not obligated to receive, purchase or utilize any other services offered by DRS or its exclusive partners to receive financial education or housing counseling services. Alternatives: As a condition of our counseling services, in alignment with meeting our client services goals, and in compliance with HUD’s Housing Counseling Program requirements, we may provide information on alternative services, programs, and products available to you, if applicable and known by our staff. Alternative DMP services include negotiating better repayment terms directly with your individual creditors, paying your debts as agreed, or, in extreme cases, filing for personal bankruptcy. Alternative credit and education services can be found through MyMoney.gov or the Jump$tart Clearinghouse of online financial education resources. Housing counseling alternatives can be found through HUD at www.hud.gov/findacounselor.
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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

Rental, Fair Housing, Predatory Lending / HOEPA, Post-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. credit, budgeting, homeless prevention, debt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).

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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

Rental, Fair Housing, Predatory Lending / HOEPA, Post-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. credit, budgeting, homeless prevention, debt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).