The Debt Snowball Method: Does it Really Work?

You’ve tried everything to eliminate your consumer debt, but nothing has worked. It’s hard to find a balance between your regular expenses and paying off debt.

Many people successfully paid their debts using the debt snowball method. Does this strategy really work, and should you try it?

Let’s find out!

Table of Contents

    What is the Debt Snowball Method?

    The debt snowball method is a financial approach that suggests paying off outstanding debt with the smallest balance first. After repaying this debt, you can put extra money toward paying off your next smallest debt. You repeat this process until you’re debt free.

    So, the idea is that your money can gradually snowball until you pay off larger and larger balances—that’s why it is called a debt snowball. Theoretically, when the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill and gathering more snow.

    How Does the Debt Snowball Method Work?

    Are you familiar with Dave Ramsey’s 7 baby steps? If not, briefly—it is a financial strategy that teaches you how to save for emergencies, pay off all your debt for good, and build wealth

    The debt snowball is part of the second baby step toward a better financial situation. After the first step of the challenge, an individual has saved $1,000. The next step is time to pay off the cars, the credit cards, and the student loans.

    We can divide this second step into smaller ones so it is easier for you to start:

    1. Make a list of debts

    It’s crucial to first make a list of all of your debts. You can create a spreadsheet or use a pen and paper to write down every outstanding debt. 

    In this list, you should include credit cards, medical bills, student loans, and any other debts you might have. Mortgages are the only debts you don’t include in this list.

    Except for the type of debt, you should also include information about the total amount you owe, the minimum payment, the interest rate, and the monthly due date. After you have all of the relevant information about your debts in one place, you can move on to stage 2.

    1. Continue to make on-time minimum payments

    You should keep making minimum payments on all your debts. Since payment history makes up 35% of the total credit score, the more debt payments you make, the fewer fees you will be charged. And as a result, you will have a more positive impact on your credit score.

    1. Focus on paying off the smallest debt

    You will simultaneously make minimum payments on the rest of your debts and pay any extra available funds toward your smallest debt

    If you don’t have enough money for this, we suggest you read the ideas on how to make money without a job, both online and in reality. We should try our best if we want to see the results; it can be hard sometimes, but don’t give up!

    1. Repeat the process

    You will continue to put all your extra funds toward that smallest debt until it’s completely paid off. When you cross that one off the list, you go for the second smallest debt. And you continue paying off debt and repeat this process until all your outstanding debts are paid off.

    The Debt Snowball Method: Does it Really Work?

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    We’ve created this example so it’s easier for you to see how the debt snowball method works in real life.

    Debt snowball method table

    In our example, the medical bill is the smallest debt. So, you should use all of your available funds to pay off those bills first. At the same time, you make sure to pay the minimum monthly payments on all your other debts.

    After some time, you will pay off your medical bill. After that, you can focus on the next smallest debt, which is, in this example, credit card A. Put the money you used to pay the medical bill—and any other extra cash you might have—into paying off this debt next.

    Once you pay off credit card debt A, you move on to the next debt and repeat the same process. You pay them off one by one until you don’t pay the student loan. And after that, all your debts are paid off.

    Pros and Cons of the Debt Snowball Strategy

    One of the most significant advantages of the debt snowball strategy is that it helps people build motivation. And it’s not strange why people feel motivated because the first results can be seen quickly.

    When people pay off their first debt, they experience a psychological boost that encourages them to continue. Since the results are obvious almost instantly, people are usually encouraged to stick with the plan and continue. These “quick wins” are essential to reducing debt, according to Dave Ramsey.

    Another important advantage of the snowball method is that it’s pretty straightforward—people don’t have to compare interest rates or APRs; they just have to look at the amounts owed.

    A debt snowball plan can be especially beneficial for people who carry significant amounts of debt or struggle with paying bills each month.

    But there is always the other side of the coin. The huge disadvantage of this strategy is that it doesn’t reduce the amount you pay in overall interest. On top of that, it can be a really time-consuming process.

    pros and cons of debt snowball method

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    The Difference Between Debt Snowball and Debt Avalanche

    The debt avalanche method is another strategy for debt repayment, but with reverse logic than the debt snowball. The idea of a debt avalanche is to first focus on paying off high-interest debt. Once you have paid off the more significant debts, you can put the extra money from those payments toward paying off the remaining lower-interest debt.

    debt avalanche vs debt snowball

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    If you choose to repay debts using the avalanche method, it might take a bit longer than the debt snowball method, but it may also result in paying less interest.

    While the debt snowball method focuses on the smallest debts, the debt avalanche method makes the bills with the highest interest rates a priority. As a result, the debt avalanche will save you the most in interest payments.

    Let’s see the numbers.

    Debt Avalanche Example

    For this purpose, let’s say you have a remaining $3,000 after the minimum monthly payment. And for example, you have the following debts:

    1. $10,000 credit card debt at an 18.99% annual percentage rate
    2. $9,000 car loan at a 3.00% interest rate
    3. $15,000 student loan at a 4.50% interest rate.

    In this scenario, the avalanche method suggests you pay off your credit card debt first because it has the highest interest rate. If you use your $3,000 of extra money to pay off that debt—you will pay it off in 11 months with a total of $1,011.6 in interest.

    On the other hand, if we apply the snowball method to the same example, you would have to tackle the car loan first. You would become debt-free in 11 months, but you would have paid much more interest—$1,514.97, to be precise.

    Which Debt Repayment Method is Better?

    It’s really hard to say which strategy is better because they both work, and the outcome will depend on your individual circumstances. A debt avalanche strategy is great in terms of saving money, but on the other hand, people stay motivated with the snowball method because the results are quicker.

    Final Words

    The debt snowball plan is really wisely designed and has helped many people get out of debt. If you’re asking if the debt snowball works, the answer is absolutely yes.

    The debt snowball method isn’t the ultimate strategy for a debt-free life. The biggest flaw with both the 7 baby steps and the debt snowball method is that they don’t teach us how to save money, and they can’t help us generate more money.

    But that doesn’t mean it’s not possible to do so. We’ve found a way to pay off debt and, while doing so, set the foundation for the system that will keep you out of debt for good.

    It’s important to set a goal to pay off the debt, but even more important is the change in your mindset and habits. When you improve your money mindset and break bad habits, you won’t be in debt again.

    On top of that, with a system that works for you and not against you, you will have the opportunity to generate more money, finance everything you need, and truly own your own lifestyle.

    We used the personal banking system to pay off our $120k debt and become financially free. After that, we also helped our clients generate $80 million in wealth. 

    Are you intrigued?

    Let’s show you what we did!

    Lifestyle Banking

    A few years ago, we were in $120k debt without our mortgage. We realized that that was not the way we wanted to live and started learning and searching for our options.

    We’ve recognized that we throw a lot of our money into interest payments—around $2k. And our thoughts were: We will have so much less debt if we stop throwing away our money like that!

    After researching how to make those payments returned to us, we found a dividend-paying whole life insurance policy.

    A whole life policy is a type of permanent life insurance with a savings component called cash value. Lifestyle banking is a financial strategy that utilizes whole life insurance to grow your money and recapture the interest that would otherwise go to the banks.

    Here are the basics of Lifestyle Banking:

    1. Set up a whole life insurance policy: Start by obtaining a whole life insurance policy from a reputable mutual insurance company.
    2. Make premium payments: These payments will go towards the cost of insurance and also contribute to the cash value of the policy.
    3. Accumulate cash value: Over time, the cash value of your policy will increase as you continue to make premium payments. The cash value grows on a tax-deferred basis and earns dividends.
    4. Access policy loans: Once your policy has accumulated sufficient cash value, you can borrow against it by taking out a policy loan.
    5. Use policy loans as financing: Instead of borrowing money from a bank, you can use the policy loan as a source of financing for various purposes, such as investments, business expenses, to pay a debt, or personal needs—you use whole life insurance to finance your own lifestyle.
    6. Pay interest to yourself: When you take out a policy loan, you’ll be charged interest by the insurance company. However, the interest you pay goes back into your own policy as an addition to your cash value. This allows you to recapture the interest payments and build wealth within your policy.
    7. Repay the policy loan: It’s important to repay the policy loan over time, ideally with interest, to maintain the integrity of your Lifestyle Banking strategy. By repaying the loan, you replenish the cash value and make it available for future borrowing or other purposes.
    8. Repeat the cycle with more and more cash every time.

    And this is exactly what we did to go from $120k in debt to financial freedom.

    The best part? You can do this too!

    We know that starting can be challenging, especially if you have a lot of debt and not such great money-management skills.

    That’s why we’ve created a challenge to help you save your first $500 to buy a whole life insurance policy and start your own banking system to pay off your debt and build wealth.

    Join Our Pay Yourself First Challenge

    All the methods we mentioned can work if you stay committed, but life throws punches when we least expect them. 

    We’ll work with you to help you save your first $500 and set you up for success, which starts with paying off your debt. 

    And after you get out of debt, it gets even better. 

    We’ll guide you toward your first investment, which is buying a whole life insurance policy. 

    And this is where the fun starts. 

    You’re taking two steps in the right direction—getting out of debt and setting your policy. 

    Join our PYF challenge and make a change in your life!