How to get out of debt with the snowball payoff method

Paying off debt can be a frustrating process. If you're struggling with high-interest credit cards or loans, each monthly payment can feel like you're barely lowering your balance. The snowball method for debt reduction offers a motivational approach to help you see progress quickly, tackle your debt and save for the future.

There is a way through the mathematical and psychological hurdles of managing your debt. Let's explore the snowball debt repayment strategy, a method designed to help you gain momentum and conquer your debt.

The snowball debt payoff method focuses on paying off the balances you owe in order from smallest to largest. Once you've repaid the first debt, you've created the core of your snowball. Each subsequent debt you repay builds on the first, increasing the size of your snowball.

Implementing the snowball debt repayment strategy is a simple process:

1. Determine how much you owe. Make a list of all the debts you want to include in your snowball, then sort them from smallest to largest.
2. Make payments. For every debt except the smallest one, make the minimum payment each month.
3. Prioritize the smallest debt. Pay more than the minimum toward your smallest debt each month until you've paid it off.
4. Reallocate your debt payments. Now that you've repaid your smallest debt, you can take all the money you were putting toward that debt each month and put it toward your second smallest debt.

The snowball debt repayment strategy isn’t just about paying off debt—it’s a powerful way to stay motivated and build lasting momentum. Beyond the financial benefits, this approach helps create discipline and confidence, key factors in reaching any major goal.

• It provides quick wins. Confronting your debt and committing to repaying it often takes courage and a willingness to change your habits. Seeing success early can motivate you to keep going.
• It builds confidence. By the time you get to your largest debt, paying it off may not seem as daunting because you've now done it many times before.
• It's easy to implement. Paying the minimum on every debt except one isn't complicated and gives you a single goal to focus on.

While the snowball method for debt reduction can be highly effective for staying motivated, it's essential to be aware of it's potential drawbacks:

• It doesn't lower your rates. Negotiating lower rates with creditors, either on your own or with help from a nonprofit counseling company, can be key to getting out of debt. The snowball method overlooks this opportunity (but you could incorporate it).
• It can take a long time. If your larger debts are also your higher-interest debts, the snowball method could be a slower way to pay down your debts.
• It doesn't prioritize interest charges. You may pay more interest overall if you use the debt snowball method instead of the debt avalanche method—if you followed each method perfectly. If achieving faster wins motivates you and keeps you on track, however, the snowball method could be less expensive.

Learn more about the avalanche method compares to the snowball method

Suppose you have three debts: $1,000, $2,500, and $6,000. For simplicity, let's also say the monthly minimum payment on each is $100. Using the snowball method, you would pay the minimum of $100 on the $6,000 and $2,500 debts each month, and pay as much as you can afford on the $1,000 debt each month.

As soon as you've paid off the $1,000 debt, you shift to focus on the $2,500 debt. All the money you were previously putting toward the $1,000 debt every month can now be added to your usual $100 minimum for the $2,500 debt until it's paid off. Once that's gone, your only focus is the largest debt, and you'd apply whatever you had been paying before to this debt until it is also paid down or gone.

Mixed race woman paying bills on laptop

Paying off debt vs. saving: Where to focus first

You work hard for your money and do your best to make it work hard for you. With multiple financial goals to manage, you may wonder whether it's better to pay off debt or save up your money. How do you know which one to prioritize?

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Ready to put the snowball debt repayment method into action? Here's how to create a personalized plan to tackle your debt using an example of the following debts:

• $8,200 personal loan balance, 14% fixed rate
• $17,000 car loan balance, 8% fixed rate
• $36,000 student loan balance, 6% fixed rate
• $275 credit card balance, 29% variable rate
• $4,500 credit card balance, 16% variable rate

To use the snowball method, ignore the interest rates on your debts and the type of debt. Then, organize your balances from smallest to largest:

• $275
• $4,500
• $8,200
• $17,000
• $36,000

Next, look at your latest statements to get the minimum monthly payment for each debt:

• $15/month
• $200/month
• $400/month
• $500/month
• $300/month

Add these amounts to get your total minimum monthly payments:

$15 + $200 + $400 + $500 + $300 = $1,415

After that, examine your monthly budget. You might decide that you can put an extra $250/month toward your debt. Under the snowball method, you allocate all of it to the smallest debt: the $265 credit card balance. In month 1, you've completely repaid your smallest debt. (If you can't find room in your budget for extra debt payments, Thrivent's free Money Canvas coaching program could help you get unstuck.)

In month 2, you'll take the money you were putting toward your smallest debt and add it to the minimum payment for your second-smallest debt. Your payments for month 2 will look like this:

• $15 + $250 + $200 = $465/month
• $400/month
• $500/month
• $300/month

You'll repeat this process until you get to your largest debt and/or feel that your debts are manageable under your usual budget.

One thing to keep in mind is that the minimum payment on your credit card debt won't be the same every month. As your balance goes down and your variable rate changes (possibly), your minimum payment could decrease or increase. Check your statement and adjust your payment accordingly.

The snowball debt repayment method isn't the only way to get out of debt. While it may work well for you if you need a psychological boost to get going and stay motivated, it does not address reducing the amount of interest paid over time. No matter what strategy you choose, paying off debt can be easier when you have someone in your corner to root for you, hold you accountable and help you make adjustments when life changes.

To discuss your financial goals and create an overall plan for how to achieve them, talk with a Thrivent financial advisor. In addition to managing debt, they can help you work on savings and investing for your future.