What Is the Debt Snowball Method?

Credit card bills. Student loans. The mortgage payment. Balancing the budget is challenging for many Americans — especially since the average household carries more than $150,000 in debt. It's no wonder that paying off credit card debt is a top priority for many borrowers.

If you're tired of managing multiple payments, worrying about balances, and wondering how to get out of credit card debt, then it may be time to consider the debt snowball. This debt snowball method, which is one of many balance reduction strategies you can consider, can help with all kinds of loans — not just credit cards. Best of all, the debt snowball may help motivate and empower you to make healthier financial decisions and play an important role in helping you take control of your future.

What makes the debt snowball unique is its ability to motivate borrowers to keep plugging away until all of their debts are paid. If you have debt and you're determined to pay it off, here's how the debt snowball strategy can help keep you inspired.

What is the “snowball effect” in the debt snowball strategy?

Imagine you're in the park after a fresh snowfall, and you want to build a snowman. You form a small snowball and roll it along the ground, packing snow onto it as you go. Keep at it and your small snowball will turn into a large snowman.

The debt snowball strategy works the same way. Paying more than the minimum on one debt at a time instead of trying to pay down many debts at once — which this method encourages — may help decrease the amount of time it takes to pay everything off. This is the snowball technique that makes the debt snowball strategy work.

To apply the debt snowball method, start by listing each of your debts in order from smallest to largest. Apply every extra dollar you have toward the smallest balance, making only the minimum payments on the other debts. When you finish paying the smallest debt, roll — or snowball — the money you were applying to the first debt onto the payment for the next-smallest balance.

An example of the debt snowball

Let's take a look at a quick example of the debt snowball technique in action. Suppose you had balances on three credit cards: $500, $1,000, and $2,000. With this approach, you first throw all your extra cash toward the $500 balance, only making the minimum payments on the $1,000 and $2,000 balances. If you could put $250 a month toward that card, you might pay it off in two months. Then you could take that $250 payment and combine it with the payment you're making on the $1,000 balance. In this way, you chip away at your debt until the balances fall away, one by one.

The key to the debt snowball method is aggressively tackling the small debt first so you collect payoff wins as you go. You may also find that the debt snowball inspires your creativity, encouraging you to find ways to come up with extra cash.

Debt Payoff Methods Using the Snowball Effect

The debt snowball method can be broken down into a few simple steps:

  1. Make a list of your debts from smallest to largest.
  2. Start by aggressively paying off your smallest debt first (pay more than the minimum) while paying the minimum on your other balances.
  3. Once you have paid off the smallest debt, move up the list and pay off the next debt aggressively while paying the minimum on your remaining balances.
    With the steps laid out, it's easy to see how the snowball technique is an effective debt payoff method that can help you take small steps quickly.

Maximizing debt snowball benefits

Because you're not necessarily paying off debts with the highest interest rate first, it is possible that you may pay more in interest charges over time with the debt snowball method. However, you may be able to consolidate debt and help to reduce some of those interest charges by using the debt snowball method with a promotional balance transfer credit card offer, such as the Citi® Diamond Preferred® Card.

Keep in mind, however, that not everyone who applies for a balance transfer credit card offer will be approved for one, and credit card issuers typically save the best balance transfer terms for the strongest applicants. If your credit is healthy and you think you may be approved, sign up for alert emails and pay attention to promotional offers so you won't miss an opportunity to apply.

Whether you use the debt snowball method or not, pay credit card bills on time and make sure you abide by a card's terms and conditions. Failure to pay on time and as promised could mean you'll lose your promotional rate, along with any accumulated rewards or miles also offered by the credit card. It could also negatively impact your credit, since about one-third of your credit score relates to payment history. Fees resulting from late payments eat into your interest savings even more, making prompt repayment a must-do for anyone trying to get out of debt.

How does the debt snowball method work?

One reason the debt snowball is effective is because you see that your efforts are making a difference as your balances disappear one by one. There's a psychological benefit to making the last payment on a card, crossing that debt off your list, and moving on to the next one.

With the debt snowball strategy, there's also momentum in watching the amount that you throw at your debt grow over time — and incentive to put found money toward your balances.

Does the debt snowball method work for all kinds of debt?

The debt snowball method can work for all kinds of debt — not just credit card debt — and the method only requires a plan and a commitment. Once you start the debt snowball, momentum builds on itself, and you pay off more and more debt over time.

In short, the debt snowball strategy is a method that keeps people on task — helping them successfully eliminate debt.

How does the debt snowball method affect your credit score?

A large part of your credit score relates to on-time payments and to outstanding debt balances. And although the debt snowball strategy alone won't build your credit score, as you continue making on-time payments and decreasing your balances, it may help.

Credit reporting agencies compare your total debt balances against your total credit limit. In general, provided you use your credit cards and pay on time and as promised, the lower your ratio, the better your credit score will be. And the less debt you have sitting on credit cards, the better your ratio will be.

For example, imagine you have three credit cards, each with a $5,000 credit limit. On the first card, you have a $4,500 balance. On the second card, you have a $4,000 balance. The third card you don't often use because you save it for emergencies only, and right now it has a $3,000 balance. With $11,500 in total debt, you've used about 77% of your total credit limit, which is $15,000.

How credit agencies use this information to calculate scores is secret, proprietary information. But as you pay this balance down by designating certain cards as snowball credit cards, the percentage of total credit you're using will fall. Assuming you don't take on more debt, and you continue to pay on time and follow other cardholder agreement rules, this may help you build your credit.

Advantages and Disadvantages of the Snowball Method

The biggest benefit of the snowball method is in helping you set debt-paying goals that you can actually reach. The more you get overwhelmed by paying off many debts at once, the more difficult paying off all your debt seems. But by focusing on smaller steps, you'll realize that paying off all your existing debt is a completely attainable goal.

The biggest downside of the snowball method is that your larger debts will accumulate more interest as you focus on paying off the smaller ones. So the debt snowball might not be a good idea if you have larger debts with especially high interest rates.

Is the debt snowball right for me?

If you're tackling a large amount of debt that's comprised of credit card and loan balances of different amounts, the debt snowball method should be a candidate for your debt payoff strategy. While you do trade off paying more in interest on your higher loans, you gain by creating a manageable set of milestones that you can actually afford to pay. That way, you can get a better handle on your debt and move towards financial stability.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

Additional Resources

  • Utilize these resources to help you assess your current finances & plan for the future.

  • Learn how FICO® Scores are determined, why they matter and more.

  • Review financial terms & definitions to help you better understand credit & finances.