What Is the Debt Snowball?
The debt snowball is adebt payoff methodwhere you pay your debts from smallest to largest, regardless of interest rate. Knock out the smallest debt first. Then, take what you were paying on that debt and add it to the payment of your next smallest debt.
Why a snowball? Because just like a snowball rolling downhill, paying off debt is all about momentum. With every debt you pay off, you gain speed until you’re an unstoppable, debt-crushing force.
Here’show the debt snowball works:
Step 1: List your debts from smallest to largestregardless of interest rate.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.
What happens then? Freedom. No more payments. No more answering to collectors. No more watching your paychecks disappear.
Because when you get hyper-focused and start chucking every dollar you can at your debt, you'll see how much faster you can pay it all off. Sorry, minimum payments. You're just notgood enough.
Debt Snowball vs. Debt Avalanche
Maybe you’ve heard of another way to pay off debt—the debt avalanche. Sounds epic, right? Wrong. With the debt avalanche, you pay your debts in order from the highest interest rate to the lowest, regardless of the balance.
That might sound like smart math. Here’s why it’s not: Debt isn’t a math problem. It’s a behavior problem.
If you want to change your behavior and get out of debt, you need to stay motivated. With the debt avalanche, you may not see progress on your first debt for a long time. That’s motivating nobody. You’re way more likely to lose steam and give up.
But when you use the debt snowball, you get quick wins sooner. Crush the first debt fast. Boom. On to the next. Now, you’re cooking. Suddenly, you start believing that getting out of debt is within reach. Motivation is the key to becoming debt-free, not math.
Debt Terms
Debt terminology can be confusing and overly complicated—but it doesn’t have to be! Let’s break these down in a way you can actually understand.
Minimum Payment
This is the lowest amount you are required to pay on a debt every month (includes principal and interest). Pay any less and you might get slapped with some hefty penalties.
Balance
It's the amount you still have to pay on your debt. If your original loan was $20,000 and you’ve paid $5,000 already, your balance would be $15,000.
Interest Rate
When it comes to borrowing money, there’s no such thing as free. Lenders are interested in letting you borrow their money because they make money on what they loan you. Your interest rate is how much they charge, usually shown as a percentage of the principal balance.
Principal
No, it's not that elementary school principal you were terrified of as a kid. We’re talking about the amount of money you borrowed without the interest added. So, if you borrowed $20,000 over 10 years, your principal payment would be about $167 per month.
Nonmortgage Debt
This one is simple. It’s everything you owe, except for loans related to the purchase of your home. Yes, that includes your car notes and student loans. It’s all debt. Why don’t we ask you to list your mortgage in your debt snowball? Because after you’ve knocked out your consumer debt, you’ve got other important steps to take before tackling the house.
Debt-Free Date
It's the day when every single cent of your consumer debt is history. Bye, credit cards. See you never, student loans. If you’ve got a mortgage, you’ll hit that hard later. But for now, it’s time to celebrate.
