What Is the Debt Snowball Method?
The debt snowball is a debt-reduction strategy where you pay off your debts in order from the smallest balance to the largest balance.
Popularized by personal finance experts, it focuses on human behavior and motivation rather than strict interest savings. By clearing small balances quickly, you receive psychological "wins" that keep you focused on the long-term plan.
How the Cascade Works
To use the debt snowball method, you follow these steps:
- List your debts in order from the smallest balance to the largest balance, regardless of interest rate.
- Commit to paying the minimum monthly payment on every debt to remain in good standing.
- Allocate any extra monthly cash (the "snowball" payment) toward paying off the smallest debt.
- Once the smallest debt is fully paid, add its entire former monthly payment (its minimum plus the extra pool) to the next smallest debt's minimum payment.
Worked Example
| Debt | Balance | Min Payment |
|---|---|---|
| Credit Card A (Smallest) | $300.00 | $15.00 |
| Medical Bill | $800.00 | $25.00 |
| Student Loan (Largest) | $12,000.00 | $150.00 |
If you add an extra $100/mo, you pay $115/mo to Credit Card A. Once paid off, you pay $140/mo ($115 + $25 min) to the Medical Bill.
Source citation: Consumer Financial Protection Bureau (CFPB) guidelines on debt repayment methods.
Disclaimer: Calculations are estimates. Consult a certified financial advisor before acting.
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