What It Means
The debt snowball is a way to pay off several debtsLiabilitiesDebts and other money you owe, such as a mortgage, a car loan or a credit card balance. Your assets minus your liabilities is your net worth. See more in order of balance, smallest first. You keep making the minimum payment on every debt and put any extra money toward the smallest one. When it's paid off, its whole payment rolls onto the next smallest, so the amount aimed at each debt grows as you go.
Try It: Put Your Debts in Snowball Order
Enter your debts. The snowball ranks them by balance, smallest first, and estimates how soon the first one is gone. Example numbers to start.
| Debt | Balance ($) | APR (%) | Minimum ($) | Order |
|---|---|---|---|---|
| Store card | ||||
| Credit card | ||||
| Car loan |
After that, the second debt in line gets its own minimum plus that , for a month.
That payment doesn't cover the monthly interest on the first target. Add more, or check the numbers.
A rough estimate: it uses the APR divided by 12 as the monthly rate and leaves out fees.
How People Say It
- "Knock out the smallest one first."
- "Two cards down, the car's next."
- "Roll that payment into the next debt."
The Breakdown
Worked example. Three debts, with $150 a month extra to put toward them:
| Debt | Balance | APR | Minimum | Snowball order |
|---|---|---|---|---|
| Store cardStore credit cardA credit card offered by a retailer, either usable only at that store or co-branded with a card network, often with store discounts and a higher APR. See more | $600 | 25% | $25 | 1st |
| Credit card | $3,500 | 22% | $90 | 2nd |
| Car loanCar loanAn installment loan used to buy a vehicle, repaid in monthly payments over a set term, with the vehicle as collateral. See more | $9,000 | 7% | $250 | 3rd |
- The store card gets its $25 minimum plus the $150 extra, $175 a month, and it's gone in about 4 months.
- Next, the credit card gets its $90 minimum plus that $175, for $265 a month.
- When the credit card is paid off, the car loan gets its $250 minimum plus $265, for $515 a month.
What the result means. That first payoff comes within months. The CFPB lists that quick progress as the method's advantage and notes the trade-off: since the order ignores interest ratesInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more, you may pay more over time than you would paying the highest rate first.
Good to Know
The Consumer Financial Protection Bureau describes the snowball and the highest-interest-rate method side by side and suggests choosing by what keeps you going, quick wins or the lowest total cost. Keep every minimum paid on time while you snowball, since the plan only works if no debt falls behind. For student loansStudent loanMoney borrowed to pay for college or career school, repaid with interest after you leave school; it comes from the federal government or a private lender. See more, the CFPB says borrowers can make extra paymentsExtra paymentMoney paid toward a loan on top of the required payment, usually to lower the principal sooner, which cuts the interest and can shorten the loan. See more at any time without a penalty, and it's worth telling your servicer which loan the extra should go to.
FAQ
Is the debt snowball or the debt avalanche better?
The avalanche, which targets the highest interest rate first, usually costs less in interest. The snowball has research on its side too: a 2012 study from Northwestern University's Kellogg School of Management found people with large card balances were more likely to pay off their whole debt when they cleared the smallest balances first. Kellogg's write-up suggests the snowball fits best when the interest rates are fairly close, and the CFPB notes its quick wins can help people stay motivated.
What happens when one debt is paid off?
Its full payment, minimum plus extra, moves to the next smallest debt on top of that debt's own minimum. The payment keeps growing as each debt disappears.
Do I stop paying the bigger debts while I snowball?
No. Every debt keeps getting at least its minimum payment. Only the extra money is aimed at the smallest balance.
Do It in Buhata
Debt Payoff, Reminders
With Premium, list your cards in Debt Payoff to see the order that costs you least, and set a Reminder for each minimum payment so none slips while you snowball.
Open BuhataRelated Terms and Categories
- Debt payoff plan
A written plan for clearing your debts: every balance, rate and minimum listed, an order to pay them in, and the extra you'll add each month.
- Extra payment
Money paid toward a loan on top of the required payment, usually to lower the principal sooner, which cuts the interest and can shorten the loan.
Sources
Consumer Financial Protection Bureau, "How to reduce your debt"; Alabama Cooperative Extension System, "Reducing Debt: The Snowball and Avalanche Methods"; Kellogg School of Management, Northwestern University, "The 'snowball approach' to debt"; Kellogg Insight, "To Beat Debt, Consider Starting Small"; Consumer Financial Protection Bureau, "Can I make additional payments on my student loan?"
- www.consumerfinance.gov/archive/blog/how-reduce-your-debt
- www.aces.edu/blog/topics/finance-career/reducing-debt-the-snowball-and-avalanche-methods
- www.kellogg.northwestern.edu/news_articles/2012/snowball-approach.aspx
- insight.kellogg.northwestern.edu/article/to_beat_debt_consider_starting_small
- www.consumerfinance.gov/ask-cfpb/can-i-make-additional-payments-on-my-student-loan-en-607
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