The Debt Snowball

What is the debt snowball?

The debt snowball is simply all of your debts listed out from smallest to largest by amount owed (excluding your mortgage). As you write out your debt snowball, be sure to include the interest rate and minimum payment for each debt. Here is a throwback to our debt snowball back in 2014:


So, how does it work?

Using my old debt snowball as an example, you only pay the minimum payments on all debts except for your smallest debt. At the beginning of our debt free journey, we budgeted an additional $472.82 a month that we could use to throw at our debt. This is reflected on the snowball payment of the immigration lawyer debt. 

Now this is the fun part. Once the immigration lawyer debt has been paid off, that $572.12 will now be used towards the next debt on the list, the personal loan. The personal loan snowball payment was initially the minimum payment of $230.57, but now we get to add $572.82, so the new snowball payment for the personal loan will be $803.39. You will continue this until you get to your last debt, which you will throw all of your snowball at. For our example above, all $1,327.18 would be applied to the student loan debt until the debt is cleared. 

Hold up, why shouldn't we attack the debt with the highest interest rate first?

That is a great question. This method has a name as well - the debt avalanche. Same execution as above, but you list your debts out smallest to largest by interest rate. I am an advocate for both methods and in some cases the debt avalanche is smarter. I always run the numbers before I provide a recommendation to a client. However, 90% of the time, the debt snowball is my recommendation. Here's why; the debt snowball, like your debt free journey, is all about momentum. Once you see progress and you start to see debts coming off your debt snowball you realize that you are winning and that you can do this! Often times, if you don't get those small wins at the beginning, it is easy to lose steam and give up all together.

Here is a great tool from NerdWallet you can use to determine if you should move forward with the debt snowball or debt avalanche: After you plug in your numbers, you can see how much an additional payment will reduce the length of your loan (up to $1000 extra).

In summary, the debt snowball is an awesome tool for you to use in your journey to financial freedom. It took my wife and I 18 diligent months to pay off $33k. Through zero based budgeting, using the debt snowball, and throwing extra money at the debt we were able to do it. You can do it too. Consistency, sacrifice, and intentionality are the keys to success.

Ray Robertson