How To Use The Debt Snowball Method + Free Debt Snowball Worksheet

Debt snowball

When it comes to paying off credit card debt, it’s easy to feel overwhelmed. Many people don't know where or how to start — especially if they have multiple credit cards with different creditors and different balances and at different interest rates. On average, American adults carry about $5,673 in credit card debt, and delinquencies (past due payments) are increasing. If you're struggling to get out of debt then you should try the debt snowball method!

This popular debt payoff strategy has proven to be successful for many people because of its simple yet rewarding method. This article will explain exactly what it is, how you can use it to reach your own financial goals and become debt-free. Plus, you can download our free debt snowball worksheet!

What is the debt snowball method?

If you have multiple credit card balances, the debt snowball method helps you prioritize paying off your debt by amount. Just like an actual snowball rolling down a hill, the idea is the amount you pay towards each debt accumulates over time, and your debt is paid off faster. It also helps you focus on your payoff plan instead of trying to figure out how much to pay each month. Also, using the debt snowball spreadsheet is essential to tracking your debt pay off plan.

Here’s a quick breakdown of how to use the debt snowball method:

  1. Focus on the smallest balance first, regardless of the interest rate.
  2. Pay as much as you can towards that small balance while paying the minimum payment on your larger debts.
  3. Once the smallest balance is paid off, apply that same payment to the next smallest balance. This is in addition to the minimum payment you were already paying.
  4. Keep going that way until you’re making a giant snowball payment against your largest debt.
  5. Finally, that debt gets paid off.

Debt snowball method example 

Let's say you have four credit card balances: $4,000, $1,000, $3,000 and $2,000. How do you figure out which one to focus on paying off first? With the debt snowball method, you simply start with the smallest debt first, and so you would order them accordingly:

  • 1st debt: $1,000 ($50 minimum payment)
  • 2nd debt: $2,000 ($65 minimum payment)
  • 3rd debt: $3,000 ($70 minimum payment)
  • 4th debt: $4,000 ($75 minimum payment)

For example, let's say you have $1,000 to pay towards your debt each month.

Month 1 of your debt snowball

In month one, you would pay the minimum payments to debts 2, 3, and 4. However, on debt  1, you would pay the minimum payment PLUS an additional $740. That would look like this:

  • 1st debt: $1,000 ($50 minimum payment) + $740
  • 2nd debt: $2,000 ($65 minimum payment)
  • 3rd debt: $3,000 ($70 minimum payment)
  • 4th debt: $4,000 ($75 minimum payment)

Total paid towards debt = $1,000

Month 2 of your debt snowball

By month two, you would have paid off debt 1. However, you’d now be paying the freed up money from debt 1 to debt 2, in addition to the minimum payment. Debts 3 and 4 would still only receive the minimum payment.

  • 1st debt: $1,000 ($50 minimum payment) + $740 PAID OFF!
  • 2nd debt: $2,000 ($65 minimum payment) + $50 debt 1 minimum payment + $740
  • 3rd debt: $3,000 ($70 minimum payment)
  • 4th debt: $4,000 ($75 minimum payment)

Total paid towards debt = $1,000

After debt 2 is paid off, you’d then continue paying the minimum payments to debts 3 and 4. Continue to follow this process until you've paid off debt 3 and 4 in full.

Why does the debt snowball method work?

Well, human beings thrive on quick wins, and so paying off the smallest balances first regardless of interest rate helps you make quick progress. Therefore this motivates you to attack the rest of your debt.

So when you do rewarding things, like pay off debt, your own internal rewards system is triggered and releases dopamine. This feel-good neurotransmitter is responsible for feelings of pleasure and affects your mood, attention, and motivation.

What about interest with the debt snowball method?

The debt snowball method focuses on debt balances instead of interest rates, so it’s possible you could pay more on interest by going this route. If that’s a concern, you may want to consider the debt avalanche method instead.

How to use a debt snowball worksheet

The best thing about the debt snowball method is how simple it is to do. Using a debt snowball worksheet helps you prioritize your debts and figure out your debt payoff plan (You can download ours below). On the worksheet, you will list your debt by the smallest balance to the largest. Remember seeing your debts get paid off quickly will keep you motivated to keep going until you are debt-free.

Debt Snowball Worksheet
Click the image to download this worksheet!

You should also list the payment priority, the debt name, interest rate, and the minimum monthly payment. Work your way from top to bottom, paying off your smallest debt first. After a debt is paid off, you apply that money towards the next item. Again this causes the "snowball effect" to your debt. Watch your debt disappear with this easy to use method!

However, you can still use the debt snowball worksheet for the avalanche method. For example, rather than listing your debt from smallest to largest, you will list your debt according to the highest interest rate. The main thing is to use this worksheet to track your progress.

Creating your own debt snowball spreadsheet

If you’re creative, you can make your own debt snowball spreadsheet in excel or google sheets. The great thing about google sheets is if you have a Gmail account, you can access the basic version for free. It's also super easy to use, and you can customize your worksheet using various fonts and colors.

This debt snowball spreadsheet uses the debt snowball method and in turn, can also help you improve your credit score. It helps you focus on reducing high balances to improve your credit, and allows you to apply the debt snowball method to pay off the rest of your debt.

Snowball alternative: The debt avalanche method 

You can choose to pay off your credit card debt with the highest interest rates first, regardless of the balance size. This method is known as the avalanche method. Essentially, this approach will save you money in interest payments. By targeting high-interest debt first, your overall interest payments will most likely be lower.

Let’s say we bring back those same credit card balances from the above example —$4,000, $1,000, $3,000, and $2,000. Let’s give them each an interest rate:

  • $1,000 @ 10% ($50 minimum payment)
  • $2,000 @ 7% ($65 minimum payment)
  • $3,000 @ 8% ($70 minimum payment)
  • $4,000 @ 3% ($75 minimum payment)

Using the avalanche method, you’d prioritize paying off your debt according to interest rate, not the amount of the debt. For instance, if you had $1,000 a month to pay down that debt, here’s what your first month would look like:

Month 1 of your debt avalanche

  • 1st debt: $1,000 @ 10% ($50 minimum payment) + $740
  • 2nd debt: $3,000 @ 8% ($70 minimum payment)
  • 3rd debt: $2,000 @ 7% ($65 minimum payment)
  • 4th debt: $4,000 @ 3% ($75 minimum payment)

Total paid towards debt = $1,000

Month 2 of your debt avalanche

In month 2, once you’re done with the first highest (Debt 1), rinse and repeat for the second-highest, etc. Apply debt 1’s minimum payment PLUS the $740 toward debt 2, and pay minimums on debts 3 and 4. You’d continue until all of your credit card debt is paid off.

  • 1st debt: $1,000 @ 10% ($50 minimum payment) + $740 PAID OFF!
  • 2nd debt: $3,000 @ 8% ($70 minimum payment) +  $50 debt 1 minimum payment + $740
  • 3rd debt: $2,000 @ 7% ($65 minimum payment)
  • 4th debt: $4,000 @ 3% ($75 minimum payment)

Keep in mind; this is the toughest approach because there are no quick wins, and you might feel less motivated. That being said, with focus and discipline, this method works and will save you the most amount of money possible in interest payments.

In closing

The most important takeaway is that you need a plan when it comes to paying off your debt. I love the snowball method. It has been tried, tested, and successfully executed by thousands of people. Whatever you choose, consistency, mindset, and surrounding yourself with people who will motivate you to do better is how you will be successful. You just have to decide you are ready, make a budget along with your debt pay off strategy, and get to work. Don't forget to grab your free debt snowball spreadsheet!

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