If you grew up around snow, you know that the fastest way to build a snowball is to pack some snow into a tight ball and start rolling it around your yard. As you gain momentum and speed, your snowball grows into a snow boulder. So why in the world are we talking about snowballs? The debt snowball method is a debt-reduction strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each remaining balance. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment.
Step 1: List your debts from smallest to largest regardless of interest rate. Now, before you start arguing about the interest rates, hear us out. But more on this later. Personal Finance. Your Practice. Popular Courses. Part Of. Consumer Debt Basics.
Credit Card Basics. Debt Repayment Options and Advice. Table of Contents Expand. Debt Avalanche vs. Debt Snowball. Debt Avalanche. Special Considerations. Debt Snowball FAQs. The Bottom Line. Debt Snowball: An Overview Paying off debt is no easy task, especially if you just pay the minimum amount due each month. Key Takeaways Debt avalanche and debt snowball are both types of accelerated debt repayment plans. The debt avalanche method involves making minimum payments on all debt, then using any extra funds to pay off the debt with the highest interest rate.
The debt snowball method involves making minimum payments on all debt, then paying off the smallest debts first before moving on to bigger ones.
The debt avalanche method can result in paying less interest over time but requires discipline. The debt snowball method can be more expensive but yields quicker results—valuable for maintaining motivation. Pros Minimizes the amount of interest you pay Lessens the amount of time it takes to get out of debt. Cons Takes discipline and commitment to pull off Requires constant amount of discretionary income.
Pros Builds motivation by settling debts fast Easy to implement. Cons Incurs more interest—more expensive overall Can take longer to become completely debt-free. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Related Articles. Partner Links. A strategy for becoming debt-free, the debt snowball starts with paying off the smallest debt first and working up from there. What's a Debt Avalanche? A debt avalanche is an accelerated system of paying down debt that is based on paying the loan with the highest interest rate first.
Credit Counseling Credit counseling provides guidance and support for consumer credit, money management, debt management, and budgeting. The state and stability of an individual's personal finances is called financial health. Here are a few ways to improve it. What Is Financial Literacy? Financial literacy is the ability to understand and use various financial skills, including personal financial management, budgeting, and investing.
Still, variations from source to source could affect the precision of our results. Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since Millions of people have used our financial advice through 22 books including 12 national bestsellers published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
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