Pay Off Debt with the Snowball Strategy - 1st Source (2024)

FAQs

Pay Off Debt with the Snowball Strategy - 1st Source? ›

When using this strategy, you make the minimum payment on each of your debts, and then make as big of an extra payment as you can on the debt with the smallest remaining balance. In other words, you pay off your smallest debts first.

Here's how the debt snowball works: Step 1: List your debts from smallest to largest (regardless of interest rate). Step 2: Make minimum payments on all your debts except the smallest debt. Step 3: Throw as much extra money as you can on your smallest debt until it's gone.

With the debt snowball method, you start with your smallest debts and work your way up to the largest ones. While it may not save you as much in interest as other repayment methods, the debt snowball method can keep you motivated to continue paring down your debt.

With the debt snowball method, you pay off the smallest debt first. Each method requires you to list your debts and make minimum payments on all but one. Then, once the debt is paid off, you target another balance, and so forth, until you have paid down all your debts.

The "snowball method," simply put, means paying off the smallest of all your loans as quickly as possible. Once that debt is paid, you take the money you were putting toward that payment and roll it onto the next-smallest debt owed. Ideally, this process would continue until all accounts are paid off.

Prioritizing debt by interest rate.

This repayment strategy, sometimes called the avalanche method, prioritizes your debts from the highest interest rate to the lowest. First, you'll pay off your balance with the highest interest rate, followed by your next-highest interest rate and so on.

You'll save more on interest with the avalanche but using the snowball method can be emotionally satisfying as you clear away smaller, lingering debts first. It may help if you're trying to qualify for a mortgage as it reduces your monthly debt load.

You should first pay off debt with the highest interest rate if your goal is to save money. This approach is known as the debt avalanche method. As of the first quarter of 2024, the average annual percentage rate (APR) on credit cards was over 22%, according to the Federal Reserve.

One of these techniques is the debt snowball method. With the debt snowball, you pay off your smallest debt first and then apply the payments you were using toward that to pay the next-smallest debt. This strategy allows you to build momentum or “snowball” your payments as you pay off each debt.

Ever-changing interest rates require a solid savings strategy. The avalanche style of debt payoff tackles large interest loans first. The debt snowball pay down method is a strategy to pay off debts in order, from smallest to largest.

How long should it take to pay off debt? ›

Calculate the Time to Pay Off Debt

A good rule of thumb is to try to pay off any card balance in 36 months, but you might want to see what it will take to pay off the balance in shorter or longer increments of time. Your actual rate, payment, and costs could be higher.

List your debts from highest interest rate to lowest interest rate. Make minimum payments on each debt, except the one with the highest interest rate. Use all extra money to pay off the debt with the highest interest rate. Repeat process after paying off each debt with the highest interest rate.

In general, there are three strategies that can help you pay down or pay off your debt more efficiently. Pay the smallest debt as fast as possible. Pay minimums on all other debt. Then pay that extra toward the next largest debt.

First, always pay at least the minimum required payments on your credit cards and loans. Then allot extra money toward paying down more debt and saving, according to your goals. A debt consolidation loan or a balance transfer credit card can also help lower overall interest payments.