How to Use the Debt Snowball Method in 6 Steps

In 2021, American household debt hit an all-time high of almost $15 trillion. This debt can make it harder to reach your financial goals because you’re forced to put a large sum of money toward that debt each month.

This is where the debt snowball method can come in handy. The debt snowball method is a structured debt payoff plan where you set all debts but the smallest to a minimum, then put all your extra cash toward the smallest. You then do the same in order of smallest to largest debt until you’re debt-free. To help you become debt-free, we’ll walk you through six simple steps you can take to follow the debt snowball method.

1. Slash expenses where possible

Before getting to your debts, cut expenses wherever possible to free up cash for your debt payoff. This will speed up paying off the first debt, since those savings can compound and help you get debt-free faster.

2. List all your debts in order of principal size

After slashing expenses, start the debt snowball method by listing all your debts in order of their principal size, from smallest to largest. Ignore interest rates here since debt snowball focuses on the size of the debt itself.

3. Pay the minimum on all but the smallest debt

The debt snowball method focuses on one debt at a time. That means you set all other debts but the smallest to their minimum payments. Consider setting up autopay so you don’t have to think about these at all. That makes the main debt easier to focus on.

4. Focus on paying off the smallest debt

Now that you freed up cash by cutting expenses and setting your other debts to their minimum payments, pay all your spare cash toward the smallest debt possible. This can include part of your paycheck, but also irregular sources of income. For example, holiday gifts and tax returns can offer you a boost of cash useful for eliminating your debt faster. Continue doing this every time you earn more income until the smallest debt has been paid off.

5. Roll savings from paying off the smallest debt into the next smallest

Once you pay off the smallest debt, you focus on the next smallest. You’ll have more cash to put toward this debt since you have fewer payments to make, and you’re saving on interest. Keep all other debts at their minimum payments.

6. Continue until all debts are paid

Each time you pay off the current debt you’re focusing on, move to the next smallest debt until all debts are paid. Now, you may stop at large debts like mortgages and student loans. These tend to have larger balances, so paying them off early could take far too long to do comfortably. Plus, they may have low interest rates, so you may be better off investing your money elsewhere and earning a higher potential return. This is especially true for mortgages since your home’s potential appreciation could offset the cost of the debt.

The bottom line

Having a lot of debt can be stressful. And some debts capitalize interest, meaning accrued interest adds to the debt. This can make it take forever to pay off debt without a plan. But the debt snowball method can be that plan that helps you finally become debt-free.

Start by cutting as many expenses as comfortably possible since you can always add them back later. Set payments on all debts but the smallest to minimum, then put all extra cash towards the smallest debt until it’s gone.

Repeat this process for each debt in order of size from smallest to largest until you are debt-free. Also, consider whether it’s worth it to pay off larger debts, especially if they’re secured by a valuable asset, like mortgages. Follow these steps, stay disciplined, and you’ll soon be free from your debts.