Snowball Method for Paying Off Debt: Benefits & Alternatives

Having any amount of looming debt can lead to sleepless nights, lifestyle sacrifices, and difficulty moving toward your biggest goals—including buying a home. No matter where you’re at in your financial journey, being in debt isn’t ideal. Here’s how the snowball method can help you get rid of debt faster.

What To Do Before You Pay Down Debt

When you recognize that you have debt, your first step is to stop creating more of it. Of course, that’s often easier said than done, but it begins with creating a budget, giving yourself an allowance for key categories, and starting to save whatever dollars you can tuck away.

Once you’ve stopped accumulating debt, you can begin to look at pay down methods. One of the most popular is the snowball method, and it can work no matter how much (or how little) money you have to put toward your debt.

How the Snowball Method Works

Here’s what you need to know about the snowball method:

  • List out your debts from smallest to largest balance, regardless of the interest rate on your accounts.
  • Ensure that you can cover the minimum amount due on all of your debts each month.
  • Put all extra money toward the smallest debt first until you pay it off in full. This money is known as your “snowball.”
  • Once your smallest debt is gone, continue adding extra funds (like the minimum payment you just eliminated) into your snowball to pay off your next smallest debt.
  • Rinse and repeat until all of your debt is gone. Then make sure you stick with your budget to avoid accumulating new debt.

If you need extra motivation along the way, remind yourself of your long-term financial goals, such as paying off your mortgage and or saving enough to own a home.

Benefits of the Snowball Method

You might think this method sounds insanely simple. It is. The point of the snowball method is to pay off one debt in full as fast as possible, without worrying about calculating interest rates or other complicated numbers.

The primary advantage of the snowball method is that it simplifies the pay down process. So, you’ll enjoy these benefits:

  • Get started right away. It’s easy to identify your smallest balance and start paying it off.
  • Watch your debt shrink. Focusing on the smallest balance will keep you motivated, especially when you erase it from your list.
  • Grow your debt snowball. As you eliminate minimum payments, that money rolls into your snowball to help you knock out the next smallest debt sooner. By combining the funds you were using for old debt, you’ll grow your snowball without having to “find” the money in your budget, which can help you stay on track.

With all of these perks in mind, remember that the debt snowball is far from the only approach you can take to paying off debt. In fact, if you have the time and energy, you might be able to pay off your debt sooner by focusing on a more complex calculation method.

Downsides of the Debt Snowball

There’s nothing wrong with using the debt snowball approach to pay off your debt. If the snowball method is what will get you started the soonest and keep you motivated, it is the best possible method for you. With that said, you should note some of the compromises.

  • The snowball method prioritizes debt by balance, which means you may pay more interest in the long run.
  • This method does not consider the minimum payment due on your accounts. As a result, you might be taking a less-than-efficient approach to paying off your debt.
  • You’re eliminating debt accounts one by one. Since the snowball method does not help decrease utilization on your other accounts, it might not have an immediate impact on your credit score.
  • If you fail to combine the minimum payments you eliminate into your debt snowball as you go, you won’t actually build your snowball. That means paying off debt will be a slow and difficult process.

Ultimately, no method is perfect, and the best plan for you is the one that gets you paying down your debt as soon as possible. But, alternatives are available if you want to take a more efficient (even if slightly more complicated) approach to paying off your debt.

Alternatives to the Snowball Method

The snowball method focuses solely on the balance due on your accounts, meaning it does not allow you to prioritize based on interest or minimum payment. Depending on how much debt you have, this could cost you a substantial amount of extra interest. So, it’s worth comparing a couple of methods.

Debt Avalanche

The debt avalanche method contradicts the snowball method. Instead of paying off the lowest balance, you focus on paying off the account with the highest interest rate. This approach can reduce how much interest you pay overall, but it can also be unmotivating.

If your highest interest accounts also have large balances, you might need many months before you can check any debt off your list. In the meantime, you’re still paying the minimum amount due on all of your accounts, which could slow down your progress.

Custom Planning

The best approach (if you have the time) is to plan out your debt pay down plan based on your unique scenario. With this approach, you’ll need to list out the current balance, minimum payment, and interest rate on your accounts.

Next, calculate the ratio between the current balance and minimum payment due on all of your accounts to see which one gets you the most bang for your buck. In other words, you’re looking for the accounts with the highest minimum payment and lowest remaining balance.

In doing so, you’ll figure out which debts to prioritize based on how big of a monthly payment you can eliminate. When you have debts of a similar balance/payment, pay off the one with the highest interest rate first. Of course, this method will only help if you put all of that money into your next highest priority debt.

Protect Your Financial Health With LemonBrew

Paying off debt is never an easy task, but you’ll already feel much more in control of your financial situation once you have a plan. In the meantime, prioritize setting up a zero-based budget and ensuring that you’re able to meet your goals—like refinancing or buying a new home.

With LemonBrew Lending, you can get connected to the best mortgage solution to help you buy a home, even if you don’t have a perfect credit score. Plus, existing homeowners can find new opportunities to reduce their payments or get out of debt faster with the help of a cash-out refinance.

Ready to learn more? Explore all the ways LemonBrew Lending can help you meet your goals.