The Debt Snowball Method
The debt snowball method, popularized by Dave Ramsey, prioritizes paying off your smallest debt first while making minimum payments on others. Once the smallest debt is paid, you roll that payment into the next smallest debt, creating a 'snowball' effect. This method emphasizes psychological wins over mathematical optimization.
Mathematically, paying highest-interest debt first (debt avalanche) saves more money. However, snowball's quick wins provide motivation that helps people stick with debt repayment. Paying off a small $1,000 credit card in 3-4 months feels great and builds momentum, even if a $10,000 loan has higher interest. The best debt payoff method is the one you'll actually follow.
To implement snowball: list all debts from smallest to largest balance regardless of interest rate, make minimum payments on everything, then throw all extra money at the smallest debt. When it's paid, add that payment to the next smallest debt's payment. The snowball grows as you eliminate debts, accelerating payoff. Track progress visually to stay motivated.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Avalanche (paying highest interest first) saves more money mathematically. Snowball (paying smallest balance first) provides psychological wins that help many people stick with the plan. Choose based on your personality.
Build a small emergency fund ($500-1000) first to avoid more debt for emergencies. Then focus on debt. After debt-free, build a full 3-6 month emergency fund.
If a debt is both your smallest balance AND highest rate, that's ideal. Otherwise, stick with your chosen method. Consistency matters more than switching strategies.
Keep contributing enough to get employer 401(k) matches (free money). Beyond that, prioritize high-interest debt (over 10-12%). Once debt is manageable, resume full retirement contributions.
Track progress visually (debt thermometer, charts), celebrate small wins, connect with others on debt payoff journeys, and remember your 'why' - the freedom and opportunities that come with being debt-free.