What is the Debt Snowball & Does it Work?

By: Stephanie Faris

If you have a pile of credit card bills, you probably feel overwhelmed. It may even seem like paying off all that debt is impossible. If so, you aren’t alone. In fact, that “where do I start?” feeling is so common, financial experts have come up with a way to help, known as the “debt snowball method.”

share article

With the debt snowball method, you pay off your lowest balance first, then apply the amount you were paying toward that bill to the next-lowest balance. As you pay off each bill, you cut up the card or cancel the account, gradually reducing your debt to nothing.

That gives you the breathing room you need to save or invest part of your income each month. But there are alternatives to the debt snowball method that might work better for you.

Is the Debt Snowball Method the Right Choice?

The debt snowball method is specifically designed for revolving lines of credit, such as credit cards. Since the average U.S. credit card debt is $5,700 per household, chances are you have a balance on at least one card. Looking at the amounts you’re paying in minimum balances each month, that extra money could come in handy for vacations and saving for retirement.

This method works best for those who simply want out from under what feels like a mountain of bills. But there’s more than one approach, which means that you have the freedom to pick the one that works best with your own personality. The debt snowball will work if you’ll feel motivated and recharged with each credit card bill you pay off.

Debt Snowball Criticisms

One of the biggest criticisms of the debt snowball is that it has you paying off the lowest balance first. If you have only a $150 balance on your Macy’s card, for instance, even if the interest rate is higher, that monthly interest probably isn’t costing as much as your $5,000 Visa balance.

Another criticism of the debt snowball method is the accompanying advice to cancel accounts as you pay them off. Depending how you handle it, those cancellations can hurt your credit. Many experts recommend keeping the line of credit open and not using it. However, if having the card available will prove too much of a temptation, you’ll likely be better off canceling it.

The Debt Snowball vs The Debt Avalanche

There are unlimited alternatives to the debt snowball method, mostly because you can just choose whichever bill you want to pay off first. One popular approach is the debt avalanche, which has you paying off the credit card with the highest interest rate. You could also pay off the card with the highest balance or the ones you use the least.

The point is that you’re making progress. If you choose to pay off the highest-balance card first and you start to feel discouraged, switch to a lower-balance card rather than giving up altogether. The debt snowball method works best for those who can benefit from seeing themselves making progress in the short term while they wait for long-term payoffs.

Whatever method you use to pay off your debt, make sure you have a plan in place. It can help to have at least a few hundred dollars in an emergency fund before you get started so that you’re using that money for urgent expenditures like home and car repairs rather than continuing to add debt.