Debt Snowball Method of paying off debt…

Hi budgeting buddies,

Today I thought we would talk about the Debt Snowball method.

So, what is the Debt Snowball?

The debt snowball is a debt off method popularised by Dave Ramsey. It is where you list ALL your debt by amount owed, smallest to highest and pay your debts in that order.

As you pay debt, you add the minimum payments of the already paid debt to the one you are currently paying. Slowly building up your payment amount per account, but still paying the same amount of money from your pay. Then you keep doing that until you are debt free.  

For example:

Amount owedMinimum paymentInterest rate“Extra” payment from budget*“Extra” payment from snowballTotal payment
$200$2515%$50$0$75
$450$155%$50$25$90
$650$453%$50$40$135
$2,500$1007%$50$85$235
$6,000$30025%$50$185$535
$9,000$3005%$50$485$835

*The extra amount can be from anywhere and doesn’t have to be the same amount each month.

If you are trying to get rid of your debt quickly adding any extra money from postponed lifestyle choices may be doable. However, if you are on a longer journey, I would suggest squeezing less from your budget, so you are not deprived but still make a dent.

In that example, the total payment increased. However, when starting with all six accounts, you would have always been paying the $785 as minimum payments. It is just split and being less effective to the goal.

Numerous studies have investigated the psychology of the most effective debt payment methods. Kellogg school researchers say that “consumers who pursued the “small victories” strategy were more likely to eliminate their entire debt balance”[1].

Also, a three – part study conducted by Harvard business Review, found that by those concentrating on one account after another would pay off their debts 15% more quickly than those who were distributing their money equally throughout all their accounts until they were paid off.[2]

If you are focusing on one account at a time, you are more likely to be successful and pay your debts. Therefore, the debt payment attack plan is up to you.

Some pros I find for this method are that it is easy to organise the debts. You know how much you owe and where that falls in the priority of paying them off. (Simple and easy)

Secondly, it allows for potentially quicker and easier wins, reducing the overall number of accounts to pay. This is especially true if you have multiple “small” debts. Having 25 debts but 10 of them can be paid within a year, will greatly reduce the amount of accounts needed to be focused on, and people you need to deal with.

In my opinion, anything under $100 can be and should be taken care of as soon as possible. If you can pay immediately, then do. This is because having it sitting month after month is just more things to distract you.

Thirdly, it’s a popular method. There is a lot of support groups online to keep you motivated and on track.

The cons of the snowball include the avalanche being more mathematically efficient, more often than the snowball. So, you pay less. Also, the avalanche is usually quicker, as you are not building up compound interest on debt. Which can be an important deciding factor to which method to use.

Most of the time, after the small wins have been paid, there are only large amount of debt left. This can be frustrating, and you may lose motivation to continue. However, if you do the avalanche, this con would be more relevant at the beginning of your journey, not the end.

Some may comment minimum payments are still getting paid throughout the process, and chip away at the account. However, minimums are usually less than what accrues through interest.

The snowball is an effective way to pay off debt. Most people need the small wins at the start, especially when the amount of debt and amount of accounts are overwhelming.

It is a personal choice. I cannot choose which debt payment system is better for you.

This choice is dependent on a whole lot of factors, like the number of debts, interest rates and whether you can see the bigger picture.

In choosing your debt payoff system, I would really consider what kind of person you are.

Can you think more mathematically and are patient? Or do you need to have seen success before facing on larger goals.

For me personally, I use the snowball method. This is more because I have incredibly low interest rates on my debts. I would never be able to wait for £37,000 to be paid, before paying on anything else. So I didn’t have a lot to think about when choosing.

If I had lots of high interest lines of credit, I would use a hybrid of the avalanche and the snowball so I could have wins and a break in the cost.

My advice is be honest to yourselves before choosing.

The only way to become debt free is to reduce your spending and increase your net income; putting the difference toward paying off debt, having an emergency fund and building your own personal wealth instead of building wealth for those who own the bank.

Thank you, I hope you enjoyed this post. Please let me know what you think.

Comment time questions:

Which method have you chosen?

Are there Pros and Cons I haven’t listed?

Any other payment methods to consider?

Goodbye budgeting buddies; Much love!


[1] https://www.kellogg.northwestern.edu/news_articles/2012/snowball-approach.aspx

[2] https://hbr.org/2016/12/research-the-best-strategy-for-paying-off-credit-card-debt

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