Snowball Method

Full definition

The debt snowball method was popularized by financial author Dave Ramsey. It prioritizes behavioral motivation over mathematical optimization. How it works: List all debts by balance from smallest to largest (ignore interest rates for ranking). Pay the minimum on every debt. Put all extra money toward the smallest balance. When that debt is paid off, roll its payment amount into the next-smallest balance - the 'snowball' grows as each account closes. Psychological mechanism: Eliminating an account quickly (even if it is a small one) gives a concrete sense of progress. For borrowers who have struggled with debt motivation, a quick win can provide the momentum to stay committed to the payoff plan. The cost of snowball vs avalanche: On a typical mix of debts (credit cards at 20%-24%, car at 6%-8%), the snowball method typically costs $500-$2,000 more in total interest than the avalanche over 3-5 years. The higher cost is the price of motivation for some people. When snowball works best: When you have multiple small debts (medical bills, store cards, small credit cards) cluttering your financial picture. Eliminating accounts simplifies your monthly payments. When the psychological burden of many open accounts is more draining than the interest cost difference. When avalanche is clearly better: When one debt has an extreme rate (30%+ payday loan, high-rate credit card) and others are moderate. The math gap is too large to ignore.

• Avalanche Method
• Debt consolidation
• Personal loan
• Credit counseling