Using the Snowball Method to Pay Your Debts

You're almost ready to buy a house and experience the joys of homeownership. But first, you have to pay off your debts. You just got a new car after yours died, you're still paying off that credit card you maxed out in college (the free t-shirt is long gone), and speaking of college, don't forget your student loans. Snowballing is a great way to get those debts in check. 

You've heard people talking about using the snowball method, but what exactly is that? It's simple: You slowly build momentum with paying off your debt, putting more and more money toward each loan until you've finally paid them all. The idea is every time you pay off a small debt, you get a psychological reward because you can see yourself making progress. Sounds pretty good, right? Before you even think about using the snowball method, make sure you're paying the minimum on every single debt you have. Missed payments and debt collectors will ruin your credit and wreak havoc on your ability to buy a home. 

Ready to get started?

Pay extra on the smallest debt first. 

Get all of your debts organized somewhere. We like to use a Google Sheets spreadsheet, but there are plenty of free apps out there. Or you can go the old fashioned way and just print them out so you can see them. You want to find the smallest amount you owe. In this scenario, we're not looking at interest rates, although some people do factor that into the snowball method. 

Pay off the smallest debt.

Now that you found the debt you plan to focus on, look through your budget and see where you can save some money. Take any extra money you can every month and put it on your smallest debt. That includes birthday presents, tax returns, and any additional income from raises, bonuses, or side jobs. A word of warning: Be sure you're still contributing to your retirement account and your emergency savings fund. 


Take your zero statement or your paid in full notification and frame it. Make it your phone background. Make copies and throw them out the window while you're riding down the highways. Okay, don't do that last one, you probably have personal information on that form and littering is bad. But seriously, take some time to celebrate (inexpensively). That's one less bill coming your way every month and one less thing you have to worry about. This feeling of freedom and progress is what makes the snowball method so popular in the first place. Hold on to that feeling, because it's time to move on to the next phase. 

Add that payment to the next smallest debt.

Now that you've paid off your debt, you have extra money in your monthly budget. The traditional snowball method says to take that money and put it toward your next smallest debt every month. Now you could be paying more than double what you need to every month, which means you'll pay your debt twice as fast. Here's where we suggest: Take a moment to reevaluate your priorities. Do you want to put all the extra money on the smallest debt or do you want to split it and put some in your retirement or savings account? Take some time, talk to your financial advisor and decide. But don't let that "new" money disappear into thin air.


Now you've got the (snow)ball rolling on your debt recovery, the only thing left is to keep paying off the smallest loan until you're debt-free. Not only are you getting out of debt, but you're also making a positive effect on your credit score and decreasing your debt-to-income ratio. And that's fantastic news if you plan on buying a home. A high credit score and the low debt-to-income ratio will help you get a better interest rate on your loan, which means you'll end up paying less for your home in the long-run. 

Is the snowball method right for you? Or are you using another method to pay off your debts?