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How the debt snowball method works

  1. List debts smallest balance to largest.
  2. Pay the minimum on every debt.
  3. Put every extra dollar on the smallest.
  4. When it's paid off, roll its payment into the next.

(Ramsey)

Worked example

You have a $1,500 personal loan at 9.5% APR ($60 minimum) and a $6,000 credit card at 24.99% APR ($150 minimum). You can pay an extra $200 per month on top of all minimums.

Snowball pays the personal loan first because it has the smaller balance. The loan is gone in month 6; its $60 payment rolls into the credit card along with your $200 extra. You are debt-free in 24 months with $1,935.34 in total interest.

Avalanche on the same numbers targets the higher APR card first and finishes in 23 months with $1,669.51 interest — about $265.83 less. Snowball trades a little interest for quicker wins on the smaller loan.

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FAQ

What order do I pay debts in the snowball method?

List debts from smallest balance to largest, then focus every extra dollar on the smallest balance first.

Do I still pay minimums on every debt?

Yes. Keep minimum payments on all debts while you attack the smallest balance with any extra money.

What happens when a debt is paid off?

Roll its full payment into the next smallest balance so your total monthly payment stays the same.