How To Pay Off Debt Using The Snowball Method

What is it?

Initially made famous by US personal finance expert Dave Ramsey, the ‘snowball’ method is an easy way to pay off your debt and get a better handle on your finances. “It involves paying off your smallest debts first, before moving on to tackle the bigger ones,” advises credit specialist Chris Lilly from Finder. Put simply, people should divide their monthly income to eliminate their smallest debts first, without forgetting to make the usual minimum payments on all other forms of debt – whether that be other credit cards, mortgages or student loans.

How should you use it?

After paying the minimum required on every outstanding debt you have, the idea is to put anything extra towards clearing the smallest debt you owe. “Once that's cleared, you move on to the next smallest, and so on,” says Chris. Once a balance is paid off, the funds which were previously used to pay your smallest debt go towards the next-smallest balance, essentially building, or ‘snowballing’ your repayments. Ideally, borrowers repeat the cycle until all debts are paid.

What are the advantages?

Experts agree that the biggest advantage of the snowball method is a psychological boost, as well as being the most practical route to gaining a sense of achievement and control. “It's a strategy, and that’s certainly better than no strategy,” admits Chris, “although it's primary benefit is psychological – you'll be able to see progress sooner, which may make you more likely to stick to your plan.” The crux of the issue comes down to behaviour modification, argues Dave. “When it all boils down, hope has more to do with this equation than maths ever will.” 

What are the disadvantages?

The theory of snowball debt payments tends to lean towards amount, rather than other factors such as costly interest rates or perhaps the importance of the asset. It could mean you end up paying more than you should in interest by focusing on your most expensive debt last. “Paying off your most expensive debt first is the more standard advice,” agrees Chris, “and it tends to work out cheaper.” If you’re concerned, take a look at all of your credit card and loan interest rates. You may find this strategy isn’t the best fit for your needs. Choosing to doing the opposite – that is, paying any extra money towards your most expensive debt first – is known as debt ‘avalanching’. 

How quickly can ‘snowballing’ make you debt free?

“It ultimately depends on how much debt you have outstanding, and what interest is accruing,” warns Chris. But experts agree that having some sense of timeline in the back of your mind can be hugely motivating. Head online to find any number of debt snowball payoff calculators, which should give you the extra push you need. It’s something Dave agrees with: “You need some quick wins in order to stay pumped enough to get out of debt completely.” Ultimately, experts agree that the best method is one you can stick to. If you need more motivation to pay off debt, then try the snowball method.

How can you avoid falling back into debt?

“For most people debt is a fact of life, but if it’s been a problem for you, it may be better to avoid it where possible,” advises Chris. “If you can switch to a habit of paying for things upfront – buying them when you've saved the money – then hopefully your money can snowball rather than your debt. Once you become debt free, aim to set aside a little each month (perhaps in a cash ISA) which can be your buffer for when unexpected expenses crop up.” Borrowers should also make sure they’re reviewing monthly outgoings, such as energy and mobile bills, and invest considerable time in choosing the right financial product and getting the best rate available.
 

For more advice on paying off debt, visit Citizens Advice or contact StepChange.