Is Using a Debt Snowball a Good Idea?

There are many personal finance experts, including money guru Dave Ramsey, who promote the efficiency and effectiveness of the debt snowball solution. While it’s true that this method can work for some it is certainly not a one-size-fits-all solution. In fact there is no single correct solution for eliminating debts because every person has different financial goals, money capabilities, and requirements that help them commit to their chosen debt elimination strategies.

What is a Debt Snowball?

The first step of a debt snowball involves the creation of a budget that shows all income and expenses. Debts are listed by placing the lowest balance accounts on top and adding each additional account below in increasing balance size. Your highest account balance will be at the bottom of the list. The debt snowball method does not take the various interest rates on these accounts into consideration.


Photo by OakleyOriginals via Flickr

Moving forward with the debt snowball method you are to make the minimum payment on all your monthly accounts except the one with the smallest balance. You put all extra funds you have to make a large payment on the smallest debt until it has been zeroed out.

For example, let’s assume your lowest balance is $250 with a minimum payment of $35. In addition to your $35 minimum you put every other dollar you have “left over” in your budget towards that debt. If after paying all the minimum payments you still had $50 left in your budget you would send an $85 payment ($35 minimum + $50 left over) to that company.

Once you have eliminated the smallest debt you move on to the next lowest account. All funds used to pay off the previous debt will now go toward this balance while you continue to pay minimum payments on other debts. Continuing our example you should have an extra $35 every month moving forward to pay down the next debt.

The process repeats until all of your accounts have been paid in full and all funds you have remaining go towards the highest balance debt. The process is named the “snowball method” because the payments you are sending to creditors grow larger over time, much like a rolling snowball. You gain psychological momentum by achieving a quick win by paying off the smallest debt first.

Regardless of how efficient and simple the debt snowball method looks there are still some major concerns for some debtors which question the logic of this method, despite the push by personal finance experts.

Is Snowballing Your Debt Really a Good Idea?

The biggest controversy surrounding the debt snowball method is the disregard of the interest rate when it comes to account priority selection. The logic here is that if you choose to pay down the debts with the highest interest rates first (without taking balance sizes into consideration) you truly can eliminate debts in a faster period of time. By paying the higher interest accounts you also will be saving money in finance charges.

Depending on how logical your brain is with math the debt snowball may or may not work for you. Yet it is not uncommon for some people to stick to the snowball method purely for the psychological reasoning and benefits rather than pure math.

For instance, the debt snowball method works well for some people simply because they see results much faster. By starting with the lowest balances rather than the highest interest rates more debts are eliminated faster. This can be a huge motivating factor for when you are trying to stay on track for eliminating debts. Conversely, if you start with the higher interest balances it likely will take you much longer to see the debt actually go away even though you’ll limit the amount of interest you pay.

Making a Debt Payoff Plan Choice

The best way to consider if the debt snowball method will work to eliminate your debt effectively is to start with your own spreadsheet. Gather all of your bills, statements, and income information. Create a budget and then develop a separate list with the debt snowball method strategies in mind. If this doesn’t seem very effective for getting your debts paid off try creating a third spreadsheet with your debts listed by interest rate priority. It will be up to you, your personal finance style, and your income levels for making the determination of how best to begin eliminating your debts.

About the Author

By , on Mar 1, 2011
Tisha Tolar
Tisha Tolar is a co-owner of Trifecta Strategies, LLC and the author of Gen X. When she is not busy being a fiction writer, she writes personal finance articles for several web sites, including Moolanomy.com.

Leave Your Comment (4 Comments)

  1. Andrea says:

    I’m using a hybrid approach to pay off my debt. Two credit cards had ridiculously high interest rates, so I paid them off first. Then I jumped to one with a small balance since it won’t take long to pay it off. The last one will give me enough motivation just because it’s the last one. I think either method can be useful – the point is, you’re paying off debt either way. Even if I pay a little more interest, it’s WAY less than the interest I would pay by continuing to make minimum payments.

  2. KDB – Exactly. If the numbers bother you, then go with the best math.

    Ben – I would be the same way if we had a bunch of debt. I want the shortest path to debt freedom, even if it might be “tougher” mentally because of the lack of a bunch of small wins at the beginning. Minimize the interest charges.

  3. Ben says:

    The debt snowball’s not my style because the opportunity to reduce my biggest interest charges is what motivates me. But everyone’s different and I can see how some people would like the momentum the snowball method creates. And thanks for the mention!

  4. Kris says:

    Good question, but it really depends on the person. If you are a numbers person, then interest rates matter a lot. If you aren’t, and you just need some way to stick with your goal, then this is much better than doing nothing at all, even if it is not perfect.

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