The Debt Snowball Method – Staying Encouraged through Repayment

Many people don’t know how to pay off debt or think that repaying debt is too big of a goal. We know that debt can be overwhelming; we see the consequences of debt every day (clients with bags of unopened credit card bills and statements, families who have lost valuable possessions, etc.). At Clearpoint, we teach people how to pay off debt every day through our Debt Management Plans and other programs. We love helping our clients, but we want you to understand how to pay off debt by yourself if at all possible. The best way to do this without getting discouraged is to use the debt snowball method.

In this two part series, “How to Pay off Debt on Your Own,” we will show you how you can become debt-free at your own pace and without any professional assistance. You have the choice between the debt snowball and the debt ladder. Keep in mind, these tips are intended for consumers with low debt-to-income ratios. If your debt-to-income ratio is near 20 percent, we recommend that you contact us for a free budget and credit review.

The Debt Snowball Method: Who Should Use It

  • Do you have several credit accounts with outstanding balances?
  • Are some of these pretty small and annoying to pay each month?
  • Do you often feel discouraged by debt and bothered by high-maintenance payments?
  • Ever feel like you need a psychological boost?

If this sounds like you, you might be a good candidate for the debt snowball snowball method repayment. This method is designed to get fast results and appeals to consumers who might get discouraged easily. Ready to get started? We are here to teach you how to pay off debt via the snowball method.

Using the Debt Snowball Method:

This method is not about how to pay off debt in the most efficient way. It’s more about paying off debt in a way that brings fast results. You will pay off accounts in full very quickly when you use this method. And, if you particularly hate debt, this is a good method to get some revenge. Think of debt as the bully on the block. You are armed with a lethal snowball…get the picture?

Debt Snowball Method
Credit accounts beware! We are armed with a debt snowball.

Step 1: List your current accounts in order from smallest from largest. Ignore interest rates for now but be sure to include each minimum monthly payment. Here’s an example:

Account Name Total Amount Minimum Monthly Payment
Retail Credit Card 1 $75 $10
Retail Credit Card 2 $250 $22
Dentist Bill $300 $35
Retail Credit Card 3 $350 $41
Student Loan $6,000 $155
Car Payment $8,000 $230

Next, determine how much money you can put toward your debt this month, and set aside the funds needed to make each minimum monthly payment. What do you have left over? In this example, we have a total of $600 in our monthly budget to pay off debt. The minimum payments total $493, so we have an extra $107. Put these extra funds towards the smallest debt. If you have extra funds after this step, put them toward the next smallest debt. In this case, we paid off Retail Card 1 in full, and we still had an extra $42 to put toward Retail Card 2, $64 total (22+42).

Account Name Total Amount Minimum Monthly Payment
Retail Credit Card 1 $0 n/a
Retail Credit Card 2 $186 $22
Dentist Bill $265 $35
Retail Credit Card 3 $309 $41
Student Loan $5,845 $155
Car Payment $7,770 $230

Once you understand the debt snowball method, you will see how quickly your surplus can grow. Take a look at our example. After just one month of debt repayment, our minimum monthly payment total drops to $483 and our surplus grows to $117 (because we have already closed one account). After the second month, Retail Card 2 will almost be gone, too:

Account Name Total Amount Minimum Monthly Payment
Retail Credit Card 1 $0 n/a
Retail Credit Card 2 $47 $22
Dentist Bill $230 $35
Retail Credit Card 3 $269 $41
Student Loan $5,690 $155
Car Payment $7,540 $230

One caveat: these examples were simplified and do not include interest. Interest growth will cause debt repayment to be slightly longer.

Now that you know how to pay off debt with the debt snowball method, you probably see how quickly this method produces results. Before long, we will be able to pay off the rest of our retail credit cards and medical bills. Paying back student loan debt and car payments will take longer, but it will be much more manageable debt. Imagine how much more convenient life will be when you are making fewer debt payments each month! And, you will have more money in your pocket!

We hope this has been helpful. Be sure to check out the other way to pay off debt on your own in our article: How to Pay off Debt Efficiently: The Ladder Method. If you have any other questions about how to pay off debt, let us know or drop a line in the comments below.

Thomas Bright is a longstanding Clearpoint blogger and student loan repayment aficionado who hopes that his writing can simplify complex subjects. When he’s not writing, you’ll find him hiking, running or reading philosophy. You can follow him on Twitter.

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4 responses to “The Debt Snowball Method – Staying Encouraged through Repayment”

  • Amanda

    When using the snowball method , are you only paying one a month ? Or making payments on all still?
    Little confused about that part

    • Emilie Burke

      Hi Amanda! Thanks for asking for that clarification! While working on your debt snowball, make sure to make minimum payments on everything but only make extra payments on your smallest debt! Let me know know if that helps!

  • When paying debts from your credit report, is is better to pay the original creditor or the collection agency?

    • Emilie Burke

      Hi Kat! That’s a great question! If you debt has been sold to a collection agency, your original creditor will no longer work with you and you should only work with the collection agency. Remember that before making any large payments to get an agreement in writing! Good luck!