The Debt Snowball
A simple plan to get out of debt.
It's Time to Eliminate Your Debt!
Are you ready to get out of debt for good? The debt snowball is a simple and effective method for becoming debt-free. If you have not yet started an emergency fund, go back and check out our 7 Steps to Financial Peace before starting the debt snowball.
Why pay off consumer debt? You're paying massive interest to lenders. It's like stealing from your future income, because those interest payments could be going toward saving or investing. When you remove monthly debt payments, you build wealth much faster. More importantly, you achieve financial peace which has a positive impact on almost every area of your life. That's something you can't place a value on!
The Debt Snowball Method
We recommend using what some people call the "snowball method." The debt snowball works well for many people because it creates quicker wins early in the process. Paying off a small debt first helps the plan feel possible instead of overwhelming, and that early progress can help people stay motivated.1,2
▸Step 1List every debt you owe from the smallest balance to the largest.
▸Step 2Continue paying the minimum on every debt except the smallest one.
▸Step 3Put every extra ฿ you can spare toward that smallest debt until the balance hits zero.
▸Step 4Once it's paid off, roll that payment onto the next-smallest debt and attack it the same way.
▸Step 5Repeat until every debt is paid off and you're debt-free!
Below are 4 debts, listed from smallest to largest balance. Watch how each time one debt is paid off, its payment is added to the next debt, building momentum. Any extra money you find in your budget speeds up the process.
Ready to plan your own snowball? Plug in your real debts with our Debt Payoff Calculator to see exactly how long it will take to become debt-free.
Common Questions
Before attacking debt, you should first set aside a small starter emergency fund. That gives you a little protection so a small problem does not send you right back into more debt. After that, focus on paying off your consumer debt as aggressively as possible. Do not try to build a large savings account and pay off debt at the same time.
That is exactly why you need a starter emergency fund before you begin. If a real emergency happens, use that money for the emergency. Pause the debt snowball, take care of the problem, and rebuild your emergency fund before attacking debt again. The goal is not perfection. The goal is to keep moving forward without going deeper into debt.
You should still include it in your debt snowball. Money owed to family or friends is real debt, even if there is no formal contract or interest rate. In some cases, you may even choose to move it higher on your list if the relationship is being strained and you want to make things right sooner. If possible, communicate clearly, be honest about your plan, and then follow through. Do not ignore it just because it feels informal.
For most people, yes. Pay it off, cut the card into pieces, take a picture of it, and celebrate. If you leave the account open "just in case of an emergency," you will be tempted to use it again and risk falling right back into debt. Your emergency fund in a savings account is what should protect you from emergencies.
Earn More
- Can you get more hours at work?
- Work hard and ask your employer for a pay increase.
- Find a 2nd job on the weekends or evenings.
Sell Something
- Most of us have stuff we don't need anymore.
- Even small amounts of money can help accelerate the process of getting out of debt.
Cut Expenses
- What expense can you eliminate so you have more money to pay debt each month?
- Even small cuts can have a big impact.
- Learn to live on a budget.
Remember, It's Temporary
- Working hard to pay off debt is only a temporary season of sacrifice in your life.
- It will be difficult at first, but once you see your debt start to disappear, you'll gain momentum towards your goal!
Reorganizing your loans often doesn't have much of an impact because the problem is your behavior, not the math. At the end of the day, you still need to spend less than your income and take responsibility for your own mess. There is no magic way to make debt disappear other than sacrifice, hard work, and a change in behavior.
Yes, but not yet. Your house is usually going up in value and the interest rate is usually pretty low. For that reason we recommend you focus on paying off your consumer debt first. We'll deal with the house in Step 6. For now, just stay current on your monthly mortgage payment.