4-minute read.
One effective way to pay off debt is through the debt snowball method. You might have heard of this but what does a snowball have to do with your debt?
debt snowball method explained
This will all make sense in a minute.
The debt snowball method isn’t for everyone. If you are motivated to pay off debt according to the highest interest rate, you might not find the appeal in this method as the debt snowball method completely ignores interest rates. But, if you’ve been banging your head against the wall and feel like you have a Mt. Debt Kilimanjaro to climb, give the debt snowball method a try.

“The debt snowball method completely ignores interest rates.”

Keep debt in check with a budget spreadsheet. No fancy, expensive apps. Just you telling your money where to go. 
It’s all in the Budget

Here’s how the debt snowball method works

#1 List your debts from smallest to largest.
#2 Automate minimum payments on all debts except the smallest.
#3 Throw everything you can at the smallest debt until it’s paid off.
#4 Repeat with each debt until you are debt free!

Debt snowball method example

Let’s say you had three different debts that you want to pay off. In the debt snowball method, you will list these from smallest to largest according to total debt. Even if the minimum payment or interest rate is out of order, fixate only on the total debt. Take a look at this example:

Breakdown Debt from Smallest to Largest

Sallie Mae$4,500$25
Car loan$16,000$157
The debts are ordered from smallest to largest. In this example, you will first automate the car loan and Nelnet minimum payments. This way, you don’t get distracted or overwhelmed by those loans so you can focus all of your effort on the smallest loan, Sallie Mae.

Automate minimum payments on everything except the smallest loan.

Next, you will pay the smallest loan manually because you will be throwing any extra income towards this debt each month until it is paid off. Find areas in your budget that you can cut back on, sell unwanted items in your house, pick up freelancing jobs or clock in overtime. Get creative! This will help you make a small win fast.

Once you have the first debt paid off, you will add that payment towards the minimum payment of the next smallest debt. This is your new payment amount. For example, if you ended up throwing $400 towards Sallie Mae and paid it off, you would take $400 plus the minimum payment of $157 with the car loan and will now pay $557 towards the car each month until it is paid off. Driving a paid for car is waaayyy different than with a lien. It just drives better. Trust me, guys.

Me and my paid-for car in cash, baby. In my mechanical opinion, engines run cleaner without a lien.

Why The Debt Snowball Method Works

The debt snowball method is effective because it takes instant gratification into account. We are motivated by quick wins. When you pay off a $2,000 loan in a matter of three months, you feel incredibly empowered and in control. It motivates you to move on to the next loan with an even bigger desire to crush it as quickly as possible.

I know what you’re thinking.

“But Justine, the debt snowball method doesn’t save you as much interest in the long run. Mathematically speaking, paying off the highest interest rate first is much better.”

Well, mathematically speaking, we wouldn’t be having this conversation had you decided to borrow at 8.7% interest.

If you are paying off debt from the smallest loan to the largest, you need to forget about the math and forget about the interest. This strategy is all about mindset. Instead of sprinkling your debt payments evenly across all your debts, you are going to solely focus on the smallest debt. When you become so fixated on the end goal, the debt snowball method can be incredibly effective.

I used the debt snowball method to pay off $35,000

My debt free journey started in 2012 with $35,000 in student loan debt (more on that story here). If I was going to overcome my debt, I knew I had to be mentally motivated to pay it off fast. My very first debt was actually to my cousin who lended me $3,000 to study abroad in Australia. I automated all other payments except for hers and focused on paying her off as quickly as I could. In just three months, I ended up paying off $3,000 making $10 per hour!


debt snowball method
I borrowed $3,000 from my cousin to “study” abroad in Australia. Here’s me studying the Whitsunday Islands.
That first debt pay off was so incredibly encouraging. I knew if I could pay back $3,000 so quickly, I could certainly keep going even stronger with my next smallest debt. And in fact, I continued the debt snowball method until I had paid off all $35,000 in two and a half years making an average of $37,000 per year in salary. Holy woah. I’m a believer.
What do you think of the debt snowball method? Leave a comment below. Does it make sense to go after small wins versus savings on interest? The more we share, the more we can continue to help other millennials out there to win with money.

Learn How to Pay Off Debt By Putting A Budget In Place