Does the Debt Snowball Method Work?
Feeling buried under a mountain of debt? The debt snowball method might be your ticket to financial freedom!
What Is the Debt Snowball Method?
Picture a snowball rolling down a hill. It starts small, but as it rolls along and picks up snow, it grows larger and gains momentum. The debt snowball method is like that, but instead of the snowball getting bigger, the payment you are able to make on your debts gets bigger.
Here’s how it works: you start by paying down your smallest debt first, regardless of the interest rate. Once that first debt is paid off, you roll the amount you were paying on it into the payment for the next smallest debt, building momentum and helping you pay it down even faster.
Like a rolling snowball, each success builds on the last until you’ve wiped out all your debts. This strategy also gives you the fastest wins, helping you feel accomplished and stay motivated to tackle the next challenge.
Popularized by Dave Ramsey, the debt snowball focuses on momentum and motivation. Instead of being bogged down by interest calculations. You’re energized by progress—the key to staying on track.
The Alternative: The Debt Avalanche
The debt avalanche is an alternative approach to paying off debt, focusing on starting with debts with the highest interest rates first. On paper, it makes perfect sense: tackling high-interest debts first minimizes the total interest you pay over time, potentially saving you significant money.
However, what looks good on paper doesn’t always translate into reality.
Large debts with high interest rates can take a long time to pay off, which means you might not feel like you’re making progress. If you don’t see results quickly, it’s easy to lose motivation and abandon the plan altogether. That’s where the debt snowball’s psychological advantages can make all the difference.
Understanding human Behavior–The Power of Small Wins
The advantage of the debt snowball lies in its ability to harness the power of behavioral science. Yes, the math of the debt avalanche makes sense—you’ll pay less in interest overall by tackling high-interest debts first. But, that's only true if you are able to follow through and research says, the avalanche will make that harder.
A study from the Kellogg School of Management at Northwestern University highlights the effectiveness of small victories. By focusing on paying off smaller debts first, individuals are more likely to stay committed and eventually eliminate all their debt. This immediate sense of accomplishment acts as a motivator, creating a ripple effect of positivity.
Similarly, findings in the Harvard Business Review emphasize the power of small wins to sustain progress. Clearing small balances triggers a release of dopamine—a brain chemical tied to reward and motivation—reinforcing productive behaviors. These small successes are what make the debt snowball method so effective at keeping people engaged and moving forward, even when faced with the daunting task of debt elimination.
The debt snowball method works because it’s designed for human behavior. The satisfaction of crossing a debt off your list builds momentum, turning what feels like an overwhelming task into a series of manageable steps. Sticking with a plan is what ultimately gets people out of debt—and the debt snowball makes sticking with it easier.
Real-Life Success Stories
Many individuals have found success using the debt snowball method. Here are a couple of inspiring examples:
33-year-old Jacqueline reduced her debt from $40,000 to $4,500 over two years. She created a list of her debts for motivation, confided in her family for support, and used the snowball approach to repay her debts, focusing on small debts first. She lived frugally, worked multiple jobs, and sold personal belongings to achieve her financial goals.
Bob and Tammy had about a half a million dollars in debt when they learned about the debt snowball from Dave Ramsey. By applying the method, they became debt-free, paying off $457,000 in seven years.
How to Get Started with the Debt Snowball Method
Ready to tackle your debt? Follow these steps:
List Your Debts: Write down all your debts from smallest to largest balance.
Make Minimum Payments: Continue to make the minimum payment on all debts to avoid penalties.
Allocate Extra Funds: Put any money you can free up from your budget toward the smallest debt.
Move to the Next Debt: Once the smallest debt is paid off, apply the amount you were paying on it to the next smallest debt.
Common Questions About the Debt Snowball
Won’t I pay more in interest? Yes, in some cases. But the tradeoff is higher motivation and consistency, which often lead to faster overall debt elimination.
What if my smallest debt has a super low interest rate? Stick to the method! It’s about momentum, not math.
The debt snowball method leverages the power of small victories to keep you motivated on your journey to financial freedom. While it might not be mathematically the best, its psychological benefits can make it the more effective choice.
Remember, the best debt payoff plan is the one you’ll actually stick with. Try the debt snowball method and experience the power of momentum firsthand!
