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Have you heard of the debt snowball? The idea behind the debt snowball is that by paying off your smallest debts first, regardless of interest rates, you will gain a sense of satisfaction that gives you the motivation to plow through the rest of your debt very quickly.
In this post, we’re going to examine why the debt snowball is the best method to get out of debt, so that you can then put all your efforts into catching up retirement savings.
Table of Contents
Why even bother trying to get out of debt?
Getting out of debt is especially important if you are a baby boomer who doesn’t yet have enough saved for retirement.
If you’re like me, and got a late start saving for retirement, you may be wondering if you can ever catch up. Will you be able to add enough money to your retirement account to retire in comfort, or will you be working past 70?
It’s possible to become financially independent after a late start, but what if you have debt dragging you down?
Having debt can make it difficult to save for retirement at any age, but if you’re over 50, debt can severely impact your ability to grow your nest egg. This is one of the biggest reasons to get out of debt as quickly as possible using the debt snowball!
What is the debt snowball method?
I first learned about the debt snowball method after discovering the Dave Ramsey radio show years ago. I was amazed to hear how ordinary people paid off huge debts using the debt snowball method.
Most people reported paying off their debt within two to three years by using the debt snowball method!
There hadn’t yet been a time in our entire marriage that my husband and I were debt free, despite making payments every month. I was curious to see if the debt snowball could help us get out of debt.
My local library had copies of Dave’s books, The Total Money Makeover and Financial Peace Revisited. Both of these books provide helpful guidance for getting out of debt.
I loved reading the inspirational stories about people getting out of debt. Borrow one of these books from the library, or keep your eyes open for a used copy. I’ve picked up a few copies at thrift stores to share with others.
Related: 3 Best FIRE Books That Will Inspire Late Savers.
Finally, we even went through Financial Peace University, a 9-week class at a local church. We discovered that the debt snowball was a powerful tool for helping us to pay down our debt.
Here’s how the debt snowball works.
The debt snowball method is simple: make minimum monthly payments on all debts except the smallest one. Find all the extra cash you can and pay as much as possible on your smallest debt.
(Unless you owe money to the IRS. Then pay off the IRS as fast as you can!)
As each small debt is paid off, you add the amount of that monthly payment to the next small debt. Your debt repayment process speeds up, like a snowball rolling down the snowy slopes, gathering speed and momentum to crash through your debts until you are debt free!
The debt snowball, step by step:
Step 1 – Add up all of your debt. List every. single. one. Be sure to include the total amount owed and minimum monthly payments required for each one.
Step 2 – Now list all your debts from smallest to largest.
Step 3 – Make the minimum payments on all debts except the smallest. Pay extra on the smallest debt, paying as much extra on it each month as you can.
Step 4 – Once the smallest debt is paid off, apply the same strategy to the next smallest debt. Continue until all of your debt is paid off.
The debt snowball method allows your payments to snowball, so that each debt is paid off faster.
Use the debt snowball method and you’ll be making your debt-free scream before you know it!
What about the debt avalanche method?
There is another point of view which states it is better to pay off your debts with the highest interest rate first, which is called the debt avalanche method.
With this method, you would make minimum monthly payments on all debts. Then throw as much extra money as you can each month on the debt with the highest interest rate.
This makes sense from a math perspective. However, it didn’t work for us when we were trying to get out of debt.
We had so many bills coming in, we just felt overwhelmed.
It seemed like we just couldn’t make any progress when we tried to pay more on the debt with the highest interest rate. There was very little movement in our overall total debt, and we still had so many bills coming in. It felt like we were going to be in debt forever.
The powerful emotional impact of the debt snowball method.
Once we switched to the debt snowball method, it made all the difference! By knocking out small debts, we got excited and wanted to pay off even more!
We became “gazelle intense” and started selling things. By shopping smartly with online saving sites like Rakuten, we cut our normal expenses. Finally, we took on extra work and and side hustles to make extra money for paying down debt.
Being able to cross off small debts on our list was the spark that lit a fire under us. It had a serious emotional impact on us that increased our motivation to be debt free. This helped us work harder to get out of debt.
Science agrees that the psychological effect of paying off the smallest debts first will influence people to pay down debt more aggressively! The Journal of Consumer Research published a study in which researchers found this was because people were able to see quick progress as the balance of each individual debt went down.
My final thoughts.
The debt snowball method for getting out of debt worked the best for us, because we experienced success right away after knocking out a few smaller debts.
It gave us a sense of empowerment which helped us find ways to pay down debt even faster.
Whether you use the debt snowball method or the debt avalanche method, the important thing is getting out of debt as quickly as possible.
Once you are out of debt, channel that same intensity into caching up your retirement savings! You’re not too old and it’s not too late to boost your retirement savings for a healthy nest egg!
This is a well-written article. Your personal story lends credibility. I really like that you tried both methods and found one to work best for you and your husband. Your transparency makes it real. Thank you for writing.
Thanks for the kind words, Fred! We’ve learned to be open to trying different strategies to reach our goals. Finding something that turns on the motivation is key.
Thanks for this article and particularly the link to the JCR paper. I have been using the dispersed (or avalanche) method and agree that while mathematically it makes no difference, the more gradual reduction of several debts can make it feel like you aren’t making much progress. I also like the idea that once one debt is paid off then you are able to hit the next one with a bigger ‘snowball’ and so make a real dent in it straght away. Good job!
Glad you liked my post and the link to the research published in the Journal of Consumer Research, Raymond! It seems either method will work, but our emotions can play a powerful role. Thanks for stopping by!
I agree that the debt snowball is the best method. I’ve been using this strategy and hopefully will be debt free soon.
I’m sure you will reach your goals, lifetravelsoul! You’ve got a plan, and the plan works. Keep after it and you’ll be debt free in no time! Thanks so much for checking in!
The debt snowball effect has worked for me in the past and once I save enough money to make large payments I do but I prefer tackling it little by little so it’s more steady and creates less stress. Great post, looking forward to reading more tips!
Thank you, Deanna! I have found that being intentional about paying down debt makes a huge difference. The debt snowball is effective because it works! Glad it worked for you, too!
I think the snowball one is more rewarding and manageable. 🙂 I will be starting this program again myself. Thank you for all the detailed information!
Glad the info was useful to you, Trudy! Using the debt snowball makes it easy to feel good about knocking out debt. Celebrate the wins along the way as you attack debt because you’ll soon be debt free!
Thanks for stopping by!
We used the debt snowball when we were in the grace period for my student loans. It helped us knock off A LOT of the unsubsidized loans. And then once they all started accruing interest, we switched to the avalanche method because the accrued interest stressed me out more than the number of loans we pulled. But the snowball definitely helps boost confidence!
So glad the debt snowball worked for you, too, Moriah Joy! Either method works well when you’re motivated, as you no doubt discovered. The important thing is doing everything you can to get out of debt as fast as you can. Thanks for sharing your experience!
I paid off a lot of debt this way within the last few years. It’s a great way to work on paying off debt!
Thank you for sharing, Kadie!
I’m happy to hear the debt snowball was helpful to you, too.
That is awesome that the snowball method worked for you guys. This is a great article that breaks down the prime differences between the Snowball vs. Avalanche. Personally, I am a math guy and I prefer the Avalanche Method myself. In the past, I have used a mix of the Snowball method and the Avalanche method to knock out some student loans. Thank you for this wonderful content.
Thanks for your kind words, Frugal Expat! You are not alone in your preference for the Debt Avalanche method of debt repayment. A lot of other personal finance bloggers feel the same way. I guess I just needed the psychological boost of the small wins along the way, lol.
this is such a great read and i love how you added your own personal story to the concept.
glad it worked out for you 🙂
I’m glad you enjoyed it, Mind Beauty Simplicity! Thank you for reading & sharing your feedback!
This is a brilliant post! Having worked in the finance sector for 8 years, we were always told to pay off your highest interest debt first, but the higher interest ones never seem to budge! The snowball method makes so much more sense! We’ve just paid off a small loan and now that money goes into paying off our other credit account. I love this method. Great post!
Thank you for your kind words, Lindsay! The debt snowball is very motivating when you start to pay off those small debts first – at least it was for us, and I’m glad it worked for you, too!