# In praise of the debt snowball

During my twenties, I accumulated nearly \$25,000 in consumer debt. I had a spending problem. With time, I was able to get my spending under control (mostly), but I still owned overwhelming debt. How could I get rid of it?

The personal finance books all suggested the same approach:

1. Order your debts from highest interest rate to lowest interest rate.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the highest interest rate.
4. Throw every other penny at the debt with the highest interest rate.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-highest interest rate.

This made perfect sense. By doing this, I would be paying the minimum amount in interest over the long term. The trouble was, my highest-interest rate debt was also my debt with the biggest balance (a fully-maxed \$12,000 credit card at 19.8% interest). I'd plug away at this debt for several months at a time, but then give up because it felt like I was never getting anywhere.

This happened over and over. I'd start and fail. Start and fail. Then I read about the Debt Snowball method in Dave Ramsey's The Total Money Makeover.

## How the Debt Snowball Works

The Debt Snowball method is similar to the traditional approach except that instead of attacking high-interest rate debts first, you attack low-balance debts first. Why? Because you'll get the psychological lift of pinging debts off in rapid succession. And if you're like me, this makes all the difference. The Debt Snowball approach is:

1. Order your debts from lowest balance to highest balance.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the lowest balance.
4. Throw every other penny at the debt with the lowest balance.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.

(For more on this, including some actual figures, see my entry on two approaches to debt elimination.)

When I read about the Debt Snowball method, I was skeptical. I knew it would cost me more in the long run, at least on paper. But I figured I had nothing to lose. I tried it. In four months I'd paid off most of my debts. I was shocked. I'd been trying and failing for years, and now I was able to make a huge dent in just months? It was all because I had changed my approach just slightly.

## Why the Debt Snowball Works

Humans are complex psychological creatures. They're not adding machines. Many of us know what we ought to do but find it difficult to actually make the best choices. If we were adding machines, we wouldn't accumulate \$20,000 in consumer debt in the first place! It's misguided to tell somebody so deep in debt that they must follow the repayment plan that minimizes interest payments. The important thing to do is to set up a system of positive reinforcement, and that's exactly what the Debt Snowball method does.

Which method should you choose? Do what works for you. The first method can save you money in the long-run. But if you've tried it and failed, give the Debt Snowball method a shot. It might be the answer you're searching for!

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Duane Gran
14 years ago

I’m curious if the authors of either strategy advocate any steps to decrease interest payments. It may be possible to transfer balances from high interest sources to lower ones or to negotiate the rates to something more reasonable. Paying down debt is laudable but one can (and should) do more to minimize interest payments.

James Kew
14 years ago

I see this as very much a rationality versus practicality thing — rationally you would have been better off attacking your big high-rate debt first, but practically a plan’s only good if you stick to it. I wonder if there are any tricks to play to make the highest-rate-first plan more psychologically attractive? Maybe comparing the amount of *interest* you pay each month would provide some reinforcement? (I suspect probably not though: if you’re the type that’s buoyed by a gradually-reducing figure, you’re probably also the type that’ll choose and stick with the highest-rate first plan. If you’re not, it’s… Read more »

Jon Gabriel
14 years ago

The greatest single revelation I received from taking Ramsey’s Financial Peace University was that money was primarily an emotional issue, rather than a mathematical one.

If we were robots, the high interest first rule would work like a charm. But since we’re human, we need to see reward for good behavior. I needed to learn this before I could make any concrete progress on paying off my debts.

Mike
14 years ago

I used that approach when I got married. We combined all our debt, made the minimum payments and sent extra to the smallest bill. A couple years later we were debt free. Nice and easy to execute.

Tiiim
14 years ago

I’ve always applied a formula to paying off my debt. I take a look at my balance and the interest rate. From there, I try to figure out which one will cost me the most over the life of the loan. Take the following as an example. (I realize it is not even close to being the right formula, but I am in a hurry right now ;-)) \$10,000 x 5.99% = \$599.00 \$3,000 x 19.99% = \$599.70 \$5,000 x 16.99% = \$849.50 In this example, I would pay the \$5,000 loan first, because it would cost me the most… Read more »

M. Brubeck
14 years ago

I find it interesting (psychologically) that you saw paying off all of a \$2000 loan to be more “progress” or “reward” than paying off \$2000 dollars of a larger loan.

I would track not by the number of loans or even the amount owed, but the total interest your debt is accumulating each month. You can watch this number drop faster when you pay off higher-interest loans first. This way you see more progress (and get bigger mental “rewards”) by following the most rational strategy.

Diatryma
14 years ago

Money is a mental thing. I realized that this past month, in a money crunch; my immediate reaction was to stop buying anything, including food, and stop eating what I had.
Really stupid reaction. But it’s what came out of my brain. So I can see why the satisfaction of paying off debts this way beats the money of paying them off some other way. You’re paying extra to be debt-free, or paying extra to do a little dance every few weeks when one falls down. And probably still eating.

14 years ago

Here are some great Excel files for crunching the numbers… http://www.geocities.com/schizeckinosy/Snowball.html

I used them in my debt evaluation and it turned out that snowballing was the best method for me. I blogged about it if you’d like to read the lengthy version of my findings.

Carl Weckenmann
14 years ago

If you really get after it, and cut way back to make as much money as possible available to paying off loans, it won’t matter much which method you choose. Now if you think it will take you 10 years, go with the highest interest model.

JasonH
14 years ago

I find it interesting that people will knock Ramsey’s debt snowball method. IT WORKS! And it has worked for thousands of people (including me). Like others before me have said, it a psychological thing more than practical. But human nature makes it MORE practical than the other method.

Robert
14 years ago

It’s really the “snowball” mentality that makes it work. When you pay off that first “small” debt and then add that money to the minimum you were paying on the SECOND debt plus all the extra you can find it gets you excited about REALLY getting out of debt! In my case, I paid almost \$2k on my second debt the first month! Now THAT’S TRACTION!..

Ryan
14 years ago

The reason the debt snowball based on balances works better than interest rates is because you pay your balances with money not interest rate. You would be better off paying a higher interest rate on a 15 year mortgage than a lower rate on a 30 year. Interest rates are tactics used to get us into debt. That is why debt “con”solidation is not always the best choice. Two questions you should ask before getting financing are, 1. When will I finish paying for this? and 2. How much will it cost me? The interest rate is often used as… Read more »

Brian
14 years ago

I can attest to the snowball working like a charm. Since May 2003, my wife & I have paid off \$85,000 in consumer debt (credit cards, car loans, student loans, etc) using the debt snowball prescribed here and specifically by Dave Ramsey. We are now debt free except the house and building our emergency fund. Even while doing the snowball, we managed to have a baby and pay close to \$4,000 in medical expenses. It was a nice feeling knowing that we had CASH saved up to pay for the pregnancy expenses. My wife has also been able to quit… Read more »

Di
13 years ago

One of my favorite columnists is Michelle Singletary from the WashPost. She is following 4 people to help them attack their debt. The family featured here http://www.washingtonpost.com/wp-dyn/content/article/2007/08/04/AR2007080400092.html is doing the snowball method. A quote from the article (from Sunday’s Washington Post): Remember, the key to getting out of debt is to tackle the smallest debts first. It may seem more logical to go after the debt with the highest interest rate first. But you can get a nice psychological boost if you can pay off some small debts fast. “I like the idea of paying the smaller bills first,” Tania… Read more »

Anitra
13 years ago

I understand the psychology behind the snowball, and why it works for most people – but what happens when none of your debts are “small”? If we implemented the snowball, we’d be paying the max on our smallest (and lowest-rate) debt for a year before it was paid off. And the next biggest one is twice as big. So where’s the motivation?

JoeTaxpayer
13 years ago

Anitra, I agree. Years ago, as I tried to find low interest rate cards, I found the low rate also had a low credit limit. I’d rather have had 10 cards offering a 10% rate but low limit, than the one card at 24% with a \$10K limit. My focus then was 100% based on rates. \$100 thrown at the 24% card made me feel better than getting rid of the 10% card with lower balance. I don’t understand the ‘feel good’ of the debt snowball.

J.C.'s Money
13 years ago

Great article J.D. I was a bit upset the first time I heard of the debt snowball that someone hawking financial advice could propose something so flawed and illogical. But now I see the real power of the snowball,which is the psycological boost.

I’m glad to hear it worked out for you, congratulations on becoming debt free, and good luck with the transition to full time writing…

Mike S
13 years ago

Another approach that has worked for me, is to make a spreadsheet that keep track of all debts. It includes the balance, the interest paid (and some times charges). Each bedt has its own tab. Then by summing up all the fields on single sheet (The totals tab), I see the total reduction of debt (and lowering of interest paid each month). So you will see more results while still paying on the highest interest debt.

Combination of Methods
13 years ago

A few months ago, I started a similar approach that Mike S mentioned. With it, I can see how much the *total* goes down every month, plus how much less I’m paying towards interest and conversely how much more is going towards the principal. It really is gratifying to watch all of the numbers go in the right directions. It’s especially nice when total owed goes down to the next lower thousand mark. Next month, it should go below the next lower ten-thousand mark! It does happen that the account with the highest balance also has the highest APR though.… Read more »

Jeff
13 years ago

Ahhh I love reading these forums. My experience with paying off debt began in 2004 and took me until mid 2006 to accomplish, I had 26 creditors and a total of 44,000.00 owed. Some were smaller debts that went away quickly, I opted for the lowest bill going first, rather than by interest rates, although that did cost me more in the long run. I was so happy to see the list being pared down quickly. I learned a couple things at that time in my life, one was that once I paid that bill off, it was gone FOREVER… Read more »

Easley
13 years ago

You’ve gotta be careful about balance transfers though. Some/Alot of them only offer the 0% APR on transfers for a set period of time, say 12-14 months. If you are confident of paying off the balance in that timeframe, have at it, but if not, I’d recommend just staying with what you have, because opening up a new CC always leads to the temptation to use it. Plus if you don’t pay it off in time, you might have a larger APR than the previous card! I’m a big proponent of the snowball method. My debt was relatively small when… Read more »

Ryan McLean
13 years ago

It is so true, if we were adding machines then we would rack up debt. However, we are humans driven by emotions, therefore we need to keep our emotions in check in order to successful achieve our financial goals.
I like this strategy

rob
12 years ago

I used this method but never leaned it from anyone. I just figured it out on my own. It is much easier to keep your self focused on paying off debit if you do it. An added thing to do is to try to reduce your interest rates on all your cedit cards as you pay them off. Once you pay off a card ask your credit card company to lower your interest rate or tell them that you will cancel. They will lower your rate. Then you can do a ballance transefer at a lower interest from another card… Read more »

NtJS
12 years ago

Wow. Great post, JD. Spoken like someone who has actually been through it. Well done.

We also used Ramsey’s method, and found it to be enormously successful.

LoddiDoddi
12 years ago

The reason the Debt Snowball works is that it fits the psychology of debtors. Many people who get themselves into debt do so by turning off their logical thinking abilities and buy ‘to make themselves feel better’. I’ve seen this in a number of friends. They’re depressed because they are in over their heads, so the go out and buy themselves something, to feel better. The snowball, though not logical from a pure numbers standpoint, fits the profile of many of those in debt: Do what feels good. They see immediate gratification by sloughing off a whole bill, so they… Read more »

RAJEEV KUMAR SINGH
12 years ago

I agree with Dave’s Debt snowball theory in toto. I have had similar success with my own debt . I always make it a point to knock off the debt which is lowest in value and then attack the next one.. Leaves you with lesser accounts to follow and worry about,… great strategy

Paul in cAshburn
12 years ago

When you’ve got several small debts, the snowball approach makes sense – to give you the psychological boost at each small accomplishment. But, when you have two large loans (a \$300k 30-year fixed at 5.22% and a \$50k HELOC variable and currently at 2.70%), paying the one with the higher interest rate saves you money. And, since neither one will be paid off anytime soon, there’s no psychological boost coming anytime soon. Should the variable rate exceed the fixed rate, all extra payments go to the variable rate from that point forward. It’s just math – unless you’re going for… Read more »

Carolyn
11 years ago

I’ve been working hard for the last year to pay off a credit card that had a no-interest promotional period before that period expires. Once I’ve paid it off, I had already planned to use the funds budgeted each month for that debt and start using it to pay off another credit card, but I hadn’t been able to figure out which one to pay off first (like the author, my inclination was to pay off the highest balance, but that’s so daunting!) I’m going to try attacking the lowest balance first, because (knowing myself!) I’m going to get a… Read more »

Debt Free Dude
11 years ago

You can get the same emotional benefit by learning how to visualize your money, debt, and interest due. The debt snowball helps encourage irrational behavior instead of teaching people to act in a mathematically sound way.

Gary
10 years ago

Long story short: I was looking to list toys on eBay, so I could update my toys to better toys. I have 5 older camera bodies I was going to use to get a newer camera body. Decided to do a google search on the best eBay methods to get the most dollars out of my items. That brought me to your site. After I read your story about eBay listings, I saw your GET OUT OF DEBT button on the top right of this web site. I started to read, and it was like I found God, or fell… Read more »

A tottally different approach
9 years ago

I have a different, but close to approach. My problem is that I have a lot of small debts with family and two with banks and overdue bills that just didnt get paid, and a huge chunk of student debt. While the interest rates with my family and friends are 0% they do have a lot of embarasment interest. So here is my approach: 1 call up your family and friends (to whom you owe money) and tell them about what you are doing and ask when they need the money at the latest. (a lot of my friends told… Read more »

BT
9 years ago

This post resonated with me because I had a similar approach to paying down my debt. About a year ago, I owed two credit card debts totalling around \$12,000 and two student loan debts with a total of around \$10,000. I was making minimum payments on both. The interest on the credit cards was around 18%, while the student loans were around 7-8%. Logically, I should have paid the high-interest credit cards off first, but I decided instead to put any spare money I had into the student loans. The reason was that the minimum payments were much higher on… Read more »

mh
3 years ago

I can’t comment on the psychology of those deep in debt, but here’s how I look at credit card debt, and I’m pretty sure it would motivate me to pay it off. I think of paying down a credit card as an investment. It’s an investment with a guaranteed rate of return of whatever your credit card interest rate is, forever. Most likely, this means a guaranteed rate of return of around 20%, which is incredibly better than you can get anywhere else. Paying down credit card debt is pretty close to the best investment in the world. Start comparing… Read more »

mh
3 years ago

Another take on my earlier comment: It seems like the psychology here is rooted around where you stick “0”. If you’re below \$0 (in debt) you feel bad, and contemplating going further below 0 makes you feel worse. So… move your psychological 0 point. Make 0 be where you are now, and the 0’s of the future be where you are going (financially) if you do nothing. Bad decisions make things worse than they would otherwise have been, moving you into negative territory, good decisions make things better than they would otherwise have been, moving you into positive territory. Then… Read more »