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Get Out of Debt With the Snowball Method

When you’re struggling with several debts, it’s easy to feel like you’re stuck in a hole with no way out. Many Americans are juggling credit card debt, student loans, hospital bills, car payments, and numerous other debts, making it hard for them to save or stop living from paycheck to paycheck. There are many different methods to help people get out of debt – but one method that’s become increasingly popular is the snowball method. Learn more about this effective method that could be the trick to getting you out of debt.

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Get Out of Debt With the Snowball Method

What is the Snowball Method? 

The snowball method is a debt repayment method developed by Dave Ramsey, a prominent financial author and speaker. Here’s how it works: You pay off your debts in order from your smallest balance to your largest balance. Every month, you make the standard, minimum payments on all of your debt, except for the smallest. Pay more than the minimum for your smallest loan to pay it off faster and in full.

Once that smallest debt is paid off, use the money that was going toward its payment and use it to pay off your next smallest loan. You repeat this process with each debt until you can make large payments on your large debt, giving you the ability to pay off your debt in full. This is where the name of the method comes from – when you make a snowball, rolling it in the yard lets it gain momentum until it becomes much larger than the small ball you started with.


The steps to implement the snowball method are surprisingly simple.

Step 1: List out all your debt with the remaining balance of the debt. Arrange that debt from the smallest remaining balance to the largest. If you have two debts with a balance that’s very close in value, only then should you prioritize the debt with the higher interest rate.

Step 2: Determine how much money you need for the minimum payment for each balance.

Step 3: Make those minimum payments for every debt, except your smallest debt.

Step 4: Put more money toward the smallest debt than is required until it’s paid off in full.

Step 5: Once the first debt is paid off, use those funds to increase your payment toward the next smallest debt.

Step 6: Repeat this process until all debts are paid off.

To help explain how the snowball method looks, lets look at a real life example.

Let’s say you have five different debts: 

  • $600 medical bill
  • $1,500 credit card debt
  • $3,000 personal loan
  • $7,000 car loan
  • $20,000 student loan

To keep it simple, let’s pretend that your monthly payment for each is $50 and every month you have $500 in your budget to pay off debt. If you’re using the snowball method, you would make the $50 payment for each except for the medical bill. You would use the remaining $300 and put it toward the medical bill. After the next month, you would have your medical bill paid off in full.

The next month, you would restart the process by using the $300 dollars you used to pay off your medical bill and putting it toward your smallest bill. That $300 combined with your credit card bills current $50 means you would be paying $350 toward your credit card bill – which amounts to $1,400 because you made the $50 payment for the last two months.

In four months, you’ll be able to pay off your credit card debt in full, at which time your three remaining loans will be reduced to $2,700, $6,700, $19,700. Now you’ll be paying your personal loan back, with $400 dedicated to paying back that loan. It will take you seven months to pay that loan back in full. Your remaining two loans will be $6,350 and $19,350. The new amount you’ll now have $450 to pay off your car loan. You continue this method until you can dedicate your full $500 monthly budget solely to your student loan.

Why Use the Snowball Method

You may be thinking, “Wait, aren’t we supposed to pay off the debt with the largest interest rate first?” That’s an excellent point and for a long time has been the recommended way to pay off debt. It makes sense; the longer you have to pay off a high interest debt, the more interest you will have to pay. The method of paying off your higher interest debt first is called Debt Avalanche and mathematically speaking, you’ll probably spend less with this approach. So, what’s the advantage of the snowball method?

Surprisingly, the key reason the snowball method is helping people pay off their debt is because it makes them feel like they can pay off their debt. This method relies less on logic and more on the emotional response a person has when they pay off a debt.

According to a study done by the Kellogg School of Management, people with large balances are more likely to stick with their debt payoff plan if they focus on the smaller balances first. The feeling that they are actually making a dent in their debt motivates people to follow all the way through with their debt repayment plans. The ability to see real progress lowering debt encourages people to stick to the snowball method.

Union Helps U Save

If you’re struggling to get out of debt, a banking partner that’s Invested in U can make a big difference. At Union, we help you make smart decisions that are right for your situation — and won’t land you in more debt. Learn more about Union Community Bank’s Trusted Advisors and how they can assist you.

Come visit us at one of our 14 convenient locations today.


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