The Debt Snowball Method: The Best Way to Pay off Credit Card Debt

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Debt snowball

When it comes to paying off credit card debt a lot of people get overwhelmed because they 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.

However, Paying off debt is one of the first steps on your journey toward building wealth. If you have debt, it's time to pick a payoff plan and get to work. Enter the debt snowball method.

What is the debt snowball method and how does it work?

The debt snowball method is basically a debt payoff strategy, where if you have multiple credit card balances, you start paying them off by focusing on the smallest balances first regardless of interest rate. You pay as much as you can towards that small balance while paying the minimum payment on your larger debts.

Once that first small balance is gone, you take that payment and combine with the minimum payment on the next smallest balance and you keep going that way until you are making a giant snowball payment against your largest debt and then that debt eventually gets paid off.

How the debt snowball works

Here's a simple example: Let's say you have 4 debts of $4,000, $1,000, $3,000 and $2,000. With the debt snowball method, your plan would be to pay off the smallest debt first and so you would order them accordingly -

  • 1: $1,000 ($50 minimum payment)
  • 2: $2,000 ($65 minimum payment)
  • 3: $3,000 ($70 minimum payment)
  • 4: $4,000 ($75 minimum payment)

Let's say you have $1,000 to pay towards your debt each month. In month one, you would pay the minimum payments to debts 2 to 4 but to debt 1 you would pay the minimum payment PLUS an additional $750. By month two, you would have paid off debt 1. You will then continue paying the minimum payments to debts 3 & 4 but you will now be paying the freed up money from debt one to debt two in addition to the minimum payment. You would continue to follow this process until you've paid off debt 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 help you make quick progress and motivates to attack the rest of your debt.

Using the avalanche method as an alternative way to pay off credit card debt

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

Once you are done with the first highest, rinse and repeat for the second-highest, etc. You can also choose to pay off your debt from the highest balance to the lowest balance. 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.

How to pay off debt

In closing

The most important take away is that when it comes to paying off your debt, you need a plan. I love the snowball method. It has been tried, tested and successfully executed by thousands of people but 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 and get to work!

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