Paying down debt: Why the snowball method works

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When freelance writer Taryn Williams finished grad school with teaching credentials and more than $50,000 in debt, she had no idea how she would pay off her loans. After spending some time abroad, paying little more than the minimum, she returned home and began chipping away at her debt in earnest.

In less than two years, she managed to pay off five of her smaller loans while reducing her debt load by around $16,000.

How did she do it?

“I did my research and eventually decided that the debt snowball method was an easy choice for me,” she writes in Business Insider. “Different strategies work for different people, but I am proud of the progress I have made with the debt snowball method and—if all goes well—I will be debt-free in two years.”

Climbing out of debt can feel a lot like Sisyphus from the Greek myth, who was doomed to spend eternity rolling an immense boulder up a steep hill, only to watch it fall back down again. In the beginning, the task seems overwhelming. We might toil for a while, but when our efforts don’t produce tangible results right away, we often get discouraged and quit. Many of us end up slipping right back into our old spending habits.

But what if we’re simply going about it the wrong way? Research suggests that choosing the right debt repayment strategy can measurably increase your chances of success—and the best method might not be the one you think.

Snowball vs. avalanche method

When it comes to paying off debts, there are two common types of repayment strategies.

Financial experts usually recommend tackling the debt with the highest interest rate first and working your way down the list. Known as the avalanche method, this approach saves you the most money on interest—but it often means chipping away at your biggest debt with no end in sight. No wonder so many of us give up!

That’s why many advisers now advocate for the snowball method. Instead of focusing on the debt with the highest interest rate, you pay down the one with the lowest balance first. While you’ll end up paying more interest in the long run, you get the benefit of paying off individual debts more quickly.

Studies have found that folks who use the snowball approach are more likely to pay off their entire debt load than those who use other methods. But how much money will you lose in the process? NerdWallet’s Debt Snowball Calculator can help you compare the costs and benefits of both methods and determine your best path forward.

Which strategy is right for you?

While successful use of the avalanche method is more financially beneficial in the long run, the snowball method has the advantage of using human psychology to keep you motivated. Researchers have demonstrated that our motivation to achieve a goal increases as we get closer to it. Even the illusion of progress can inspire us to work harder.

Once you pay off that first debt, the small victory can spur you on to further effort. According to Forbes, “this is similar to when a snowball rolls downhill, gathering speed and accumulating more and more snow. Whether it’s snow or debt reduction, this effect delivers momentum. And, when it comes to your debts, the hope is that this momentum will increasingly boost your motivation by supplying a series of small victories.”

Ultimately, the best debt repayment strategy depends on your personality.

“If you need short-term victories to inspire you, you’re a snowball candidate,” says NerdWallet. “If you tend to be analytical and patient, the debt avalanche will let you repay debts in the shortest time and with the least interest—but with fewer rewards up front.”

How to use the snowball method

Ready to try the snowball method? Here’s how it works:

STEP 1: List your debts according to balance, from smallest to largest. If two debts have a similar balance, put the one with the higher interest rate first.

STEP 2: Budget enough money to make the minimum payment on each, then figure out how much extra you can put toward your debt repayment plan.

STEP 3: Pay the minimum payment plus the extra amount on your smallest balance until it’s paid off.

STEP 4: Each time a debt is paid in full, add up everything you were paying on it and apply it to the next balance on your list. This includes:

  • All minimum payments from the debts you’ve already paid off.
  • The extra amount you budgeted for.
  • The minimum payment of the debt you’re focusing on.

STEP 5: Rinse and repeat until you’re debt-free.

If you’re tired of rolling the same heavy boulder up that steep hill, the snowball method could be your ticket to financial freedom. Try it and see!