Debt Snowball Method (What It Is, How It Works, and What Effects to Expect)

The debt snowball method is an effective debt-reduction strategy that involves paying off your debts from smallest to largest. Once you’re done paying down your smallest debt, you roll over the minimum payment you made into the next-smallest debt—like rolling a snowball down the hill.

This Harvard-approved debt repayment method capitalizes on small victories to build momentum. This momentum helps you pay off your bigger debts, it’s that simple!

Derek Sall, financial expert and founder of Life And My Finances, says this about the debt snowball effect and the impactful spreadsheet he created: “I erased $116,000 of debt before turning 30 solely through the help of the debt snowball method. I created my debt snowball spreadsheet, which empowered me to repay my debts in record time. Over the past few years, I’ve refined the sheet, made it more robust, and now present it to you. Exploit the snowball tool and get out of debt now.”

Note: For more inspirational quotes on becoming and leading a debt-free life, visit our collection.

Want to dive straight into setting up your debt snowball spreadsheet? We’ve got you covered.

Head over to Etsy, make the small investment, get your instant download, and create a plan to become debt-free today.

One of our users, Redd, had this to say:

“Great product! I can actually breathe a little better after entering all of my information and seeing a light at the end of the tunnel! Great customer service as well! Highly recommend.”

If you’re not quite ready to pull the trigger on the all-inclusive spreadsheet, you could always test out the small FREE Debt Snowball Spreadsheet as well. Either way, start tackling your debts today! You’ll never regret it.

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Let’s break down the debt snowball method into five easy steps.

1. First, budget enough to cover the minimum payments for every single debt.

2. Now, arrange your debts from smallest to largest. Remember, you’re disregarding the interest rates on your debts.

3. Put any extra money you have toward your smallest debt each month.

4. Once you’ve successfully repaid the smallest debt, redirect the amount you were paying on it and target the next smallest debt.

5. Repeat until all of your debt is paid in full.

To fully understand how powerful the debt snowball effect is, you must see it in action. But to do that, you’ll need an automated debt snowball calculator. Our debt snowball Excel spreadsheet is an impactful tool to help you lay out your debts and keep you motivated. The best part?

We have a small FREE debt snowball spreadsheet you can try today. If this free tool doesn’t have enough columns for all your debts, you can check out our bigger templates.

• One of our templates can hold up to 16 debts and is available on Etsy for just $3.99.

• The largest debt snowball tool has room for 32 debts and is available on Etsy for just $9.99.

(P.S. You can make a spreadsheet yourself. But be warned that it can be super time-consuming and will cause emotional suffering.) Here’s a screenshot of the debt snowball spreadsheet below:

We’ve populated the snowball tool with three debt entries of $1,000, $2,000, and $3,000. And these are listed from the smallest to the largest debt. In mere seconds, the tool will show you how each debt will pay off over time (Marked #1 in the screenshot).

But that’s not all! (This is probably sounding like a QVC commercial. Sorry, we’re just really excited about this tool!) The top of the sheet (Marked #2 in the screenshot) lets you enter a larger monthly payment (the default is set at $300) to see how much more quickly you could pay off your debts if you put some extra dollars toward them each month.

This section also gives you a spot for a one-time lump-sum payment. Let’s say you’ve saved up an additional $1,000 somewhere. You can enter this one-time lump-sum payment to see what impact it has on your debt repayment timeframe. Our debt snowball tool also comes with a chart that will help you visualize your debt payoff journey.

One of our users, Darcie Velez, says, “It was as well worth the money to get a great Excel file! Saved me lots of time (and better than I could have done anyway!) Thank you!” Not convinced about the debt snowball spreadsheet? There are alternatives, we’ll walk you through them now—

The debt avalanche method is a strategy that focuses on paying off debts with the highest interest rates first. After paying off the debt with the highest interest rate, you move on to the debt with the second-highest interest rate. You repeat the process until all your debt is paid off.

Here’s an example: Suppose you had a personal loan of $10,000 at an 18% interest rate, a credit card debt of $5,000 at a 16% interest rate, and a student loan debt of $4,000 at a 7% interest rate. You’d be paying the personal loan first, the credit card debt second, and then the student loan last. But with the debt snowball method, you’d be paying off the student loan first, then the credit card debt, and lastly, the personal loan. Want to try the debt avalanche strategy?

Check out the best avalanche Excel template on Etsy for just $9.99. Or, click below.

We’ve populated the tool with the three debt entries from our previous examples. And these are listed from the highest interest debt to the lowest. The tool will immediately show you how each debt will pay off over time.

And just like the debt snowball spreadsheet, the top of the avalanche sheet lets you enter extra monthly payments and a one-time lump-sum payment. The debt avalanche Excel template is priced at $9.99 on Etsy and can accommodate up to 32 debts!

You can check out the 16-debt option for just $3.99 on Etsy. There’s also a FREE debt avalanche spreadsheet that can fit up to 8 debts.

We hear you say, “If the debt snowball method is the best debt-pay-off method, why do I need alternatives?” The debt avalanche method can save hundreds of dollars in interest payments and help you pay off your debts faster.

So, why does Harvard (source) think the debt snowball method is the best debt repayment method? It’s because the debt avalanche method takes a lot of discipline to stick to, and doesn’t offer you any motivation in return.

Let’s get real. Your biggest and highest-interest debt will take ages to pay off. For the debt avalanche method to work, you’ll have to stay disciplined throughout this period and not miss any strategic monthly payments. The debt snowball method, on the other hand, gives you early momentum and a sense of success every time you pay off debt.

So, it’s a bit like when you decide to improve your physique:

• You can pick up a workout you enjoy enough to come back for more, or

• You can sign up for a multi-year intense CrossFit program.

The latter is tempting, sure, but how about you keep it real and simply show up at the gym first? Still curious about how both these methods stack up against each other? Try our debt snowball vs avalanche Excel spreadsheet, which can accommodate 32 debts, for $14.99 on Etsy. With this tool, you get:

• the full debt snowball spreadsheet

• the full debt avalanche spreadsheet

• AND, you get the main page and chart that will show how quickly each method pays off against each other

One of our recent users, Leonard, had this to say:

“Exactly what I needed and if I stick to it I’ll be debt free again in about 18 months!! Derek is a great inspiration, as well as takes the time to make sure things are working for those of us who are Excel illiterate. I messed up on mine and he was kind enough to take the time and effort to fix it for me…above and beyond customer service much appreciated! Thank you Derek!!”

We’ve got an in-depth analysis of the differences with real-life scenarios to help you understand which method is best for you. Read Debt Snowball vs Avalanche Excel Spreadsheet Calculator. Again, there is a small free option that only holds 8 debts if you want to test it out!

A team of researchers at Kellogg School of Management (source) found that people with large credit card debts are more likely to pay off their entire debt if they focus first on paying off the smallest balances. Let’s dig a little deeper and see exactly why the debt snowball method works for people.

The debt snowball method has its cons. Let’s take a look at the most important ones.

Here are some ways to ensure you’re on top of your debt repayment game:

See below for answers to common questions you may have on eliminating credit card debt and loans.