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Are you buried under a mountain of debt? Have you finally said enough is enough and want to get out of debt once and for all?
Great! Now you just have to figure out the action plan you are going to use to pay off your debt and follow it.
For many people, the plan to pay off your debt comes down to the debt snowball method or the debt avalanche method. Both work well at helping you to get out of debt, but one isn’t right for everyone.
Because of this, you need to make sure you pick the right debt payoff plan for you. Otherwise, the odds are you will get discouraged and quit before you are debt free.
Since neither you nor I want that for you, let’s take a detailed look at both the debt snowball strategy and the debt avalanche strategy and the advantages and disadvantages of each so you can pick the right one.
I’ll even show you a third option I created that takes the best of both options, which I call the debt snowpacalypse method of getting out of debt.
Finally, you will see the debt payoff plan I went with and the debt snowball spreadsheet I used to get out of debt fast. I’ll also give a link to download a free copy of the debt snowball spreadsheet.
Table of Contents
The Debt Snowball Method
Step #1: Re-Order Debt From Smallest To Largest
The debt snowball method of getting out of debt is fairly straightforward. You simply create a debt snowball spreadsheet and write down all of your various sources of debt and their balances.
From there, you rank each debt in order of lowest balance to highest.
To save yourself some time, be sure to include the minimum payments for each as well.
Let’s walk through an example of how the debt snowball plan works. Below are various debts we have along with their current balances.
To use the debt snowball plan, we need to re-order this debt starting with the smallest balance and ranking to the highest balance debt as seen below.
As you can see, Credit Card #2 has the lowest balance at $300. We will focus on paying off each of these debts as outlined in the chart above: Credit Card #2, then Credit Card #1, then the Auto Loan, and finally the Personal Loan.
But how do we allocate payments?
Step #2: Allocation Of Payments
In order to allocate our payments, we first need to see how much we have to put towards our debt each month. Total up the minimum payments and make sure you can afford this amount each month.
From there, we need to see how much extra money we can put towards our debt every month. This extra money is commonly referred to as debt snowflakes, since the extra money tends to be smaller amounts.
On the surface, the small amounts don’t seem to make that much of a difference but over time, the debt snowflakes add up to large amounts of money.
In order to find out how much debt snowflakes we can put towards our debt, we need to create a budget. This will show us where our money is going every month.
There are a couple of ways to create a budget. I like spreadsheets as they give me complete control in set up, design, and additional features.
If you aren’t a spreadsheet person, then using an app is a great choice for budgeting. I’ve used and recommend GoodBudget. It’s easy to use and maintain.
After you complete your budget (if you need help getting started with a budget, read this post) you will know how much money you can safely afford to put towards your debt each month.
One note here about how much money you put towards your debt each month. Many of you know I was in debt.
One of the mistakes I made when I first started to try to get out of debt was to put every last cent I had towards my debt. My goal was to get out of debt as quickly as possible.
I stopped going out and no longer spent time with my friends. At first, this was easy. But things quickly changed. I began to hate my debt more and even resented it.
I ended up overspending and growing my debt as a result.
I made some adjustments and allowed myself to enjoy life while still paying off my debt. The moral of the story is to not put everything you have towards debt. Keep some money for going out and having fun.
I know you want to get out of debt as soon as possible. By following the debt snowball strategy or the debt avalanche strategy you will. But trying to do too much too fast is only going to end badly.
Take it from someone who has been there before.
OK, back to how much you can afford. Let’s say you have $350 per month that you can easily use to pay off debt.
You will pay the minimum payment for all of your debts except for Credit Card #2, the first debt on your snowball debt spreadsheet.
Whatever you have left of the $350 after making the minimum payment on your other debts is what goes towards this debt. Let’s see this in action.
As you can see, we made the minimum payments for all of our debts except for the first one. We took the remainder of the $350 and put it towards the first debt, $110 in this case.
Step #3: Paying Off A Debt And Continuing On
You will continue to follow the above plan until you pay off your smallest debt. Once this happens, you then start the process all over again.
You pay the minimum each month to all of your debt except for the one with the smallest balance remaining.
Whatever is left from the $350 goes towards the new lowest balance debt. Here is how this looks.
The key here is to keep paying $350 each month on your debt. Your payments “snowball” because you begin to pay more and more on the remaining debt balances as you knock out the smaller debts.
As you can see from the example above, you originally were paying $110 towards the smallest balance debt you had. Once that debt was paid off, you snowballed the $110 towards the next smallest debt and are able to pay $160 a month.
This will result in you paying off this next debt fast.
Eventually, you will be putting the entire $350 towards your biggest debt, helping you to get out of debt quickly.
Here is how the process looks as you move along.
Debt snowball plan with 2 debts left:
Debt snowball plan with 1 debt left:
Note that your balances will be dropping as you pay off your debts.
For ease of following along with this example, I kept them the same throughout so you can focus on how to allocate your payments through the debt snowball process.
Why The Debt Snowball Method Works
Since most of us want to see results immediately, the debt snowball strategy keeps you motivated to get out of debt. This is because you quickly see results.
When you pay off the smallest debt first, you will get excited and be motivated to continue paying off your debt.
But it doesn’t stop there. The motivation continues because your outstanding debts are wiped away at a faster pace because you keep paying off the smallest remaining balance along with a higher payment.
And it all starts by creating your own debt snowball spreadsheet. I love using a spreadsheet because once it is set up, you can easily follow along and pay off your debt without extra work.
The Downside To The Debt Snowball Method
There is one downside to the snowball debt method. Over the course of getting out of debt, you will pay more in interest than you would if you used the debt avalanche approach.
This is because you aren’t paying off the highest interest rate debt first. Instead you are only focusing on your balances, not your interest rates.
With this said, it’s not the end of the world to pay extra in interest because your goal is to get out of debt. And by following the debt snowball method, you do this.
If your goal was to pay the least amount of interest, then the debt avalanche method would be a better option for you.
How does the debt avalanche method work? Here is how it works.
The Debt Avalanche Method
The debt avalanche strategy is very similar to the debt snowball strategy. The only difference is instead of ordering your debts from smallest balance debt to largest, you order them from highest interest rate to lowest.
Here is what this looks like.
You set up a debt snowball spreadsheet again and follow the same payment structure as with the debt snowball method. You pay the minimum on all of your debt except for the first debt listed, the one with the highest interest rate.
Once your highest interest rate debt is paid off, you then pay the minimum on all your remaining debt except for the highest interest rate debt and put whatever is leftover of the $350. You follow this process until your debts are all paid off.
The only difference between the two methods is how you rank your debts. The payoff process is the same, paying the minimum on all balances except for the first one and working down the list as you pay off debts.
Why The Debt Avalanche Method Works
The debt avalanche plan works because you save the most in interest charges during the process of paying off your debts.
Since you are paying off the highest interest rate debt first, it doesn’t have the opportunity to sit there and accrue more interest like it does with the debt snowball method does.
The Downside To the Debt Avalanche Method
The downside to the debt avalanche method is that it can take you longer to pay off some of your debts. If you look back at the chart above, you see that the Personal Loan is your second debt you will be paying off. It is also the debt with the highest balance.
This means you will be paying off this debt for quite some time.
This may frustrate some people and cause them to give up with their goal of being debt free because they aren’t seeing progress.While you will be paying down your debt, paying it down and paying off a debt have different psychological cues for us.
Our brains are wired to see a debt eliminated as progress but not so much a debt reduced in dollars.
The catch here however is not everyone is wired the same. You may get satisfaction paying off high interest debt and not paying off debts quickly. If this is the case, then the debt avalanche is right for you.
Just know that most people are not wired this way, which is why the debt snowball is so popular and works so well for so many people.
Of course, through paying off my own debt and helping others to pay off their debt, I know there is a subset of people who want the best of both worlds.
They want to save money on interest but also get out of debt as quickly as possible.
What are your options here? I created the debt snowpacolypse method to getting out of debt.
The Debt Snowpacolypse Method
I’m not sure if I am the first to coin this term for paying off debt, but a quick search didn’t yield any results, so I think I am the first!
The debt snowpacolypse method is a combination of the debt snowball and the debt avalanche methods above. The goal is to save on interest payments while still getting out of debt at a reasonable pace.
Here is how it works.
Step 1: Call your credit card issuer and ask for a lower interest rate.
If you have been a good customer by paying on time and not missing payments they should lower it for you. But watch out. They may try to offer you a low interest rate for 6 months on new purchases. This does you no good.
You want a lower interest rate on your current balance. Try to get the interest rate under 10%. With some cards, getting a lower interest rate on your balance is easy.
With other cards, it might require you to call back a couple times and get a different person on the phone.
Step 1a: Look into consolidating your loans.
In the event you can’t get a lower interest rate from your credit card company, all hope is not lost. You can always try to consolidate some of your debt to achieve a lower monthly payment.
You can see just how much a monthly payment would be and how much you could save in interest charges by playing with the calculator below.
And if you have student loan debt, consolidating this can be a very smart move. Not only will you make your monthly payment more affordable, you can lower your interest rate and only have to worry about 1 bill to pay.
My favorite tool for consolidating student loans is Credible. You can enter your current loan information into their analyzer for free and see just what your new payment and interest rate will look like.
Step 2: Organize your debt from lowest balance to highest.
Now that you took advantage of lower interest rates, you need to organize your debt from smallest balance to largest.
Step 3: Review your debt for any painful debt.
The next step in this process is to review your debts. Do any cause you pain? Not in the sense of physical pain, but emotional pain?
For example, maybe you have some credit card debt, but you are sick and tired of your student loan bill every month and you wish you could get rid of it.
Find any or all of these painful debts and move them to the top of the list. If you have more than one, figure out which one is the most painful and list that one first. Then list the others on a sliding scale.
Step 4: Begin paying off your debts.
Your list of debts should now have your most painful debt at the top followed by the smallest balance debt all the way down to the highest balance debt.
You can now begin to pay off your debt as you would using either the debt snowball or debt avalanche methods.
You will pay the minimum on everything except for your first debt, which you will put as much money as possible towards.
Why The Debt Snowpacolypse Method Works
There are a few reasons why this debt payoff method works.
- You save some money on interest charges by asking for a lower interest rate
- You get a big win at the beginning by paying off a painful debt
- You keep your motivation high by quickly paying off smaller balance debt
Taken together, this is a great option for those looking to save a little money on interest, get rid of a painful debt, and ultimately, pay off their debt forever.
The Downside To The Debt Snowpacolypse Method
The downside to this method is that depending on how large your painful debt balance is, it can be a while until you pay it off. But, the reward for getting rid of this debt is huge.
You will be so happy and excited to pay this debt off that you will be extra motivated to keep paying off debt.
The other downside is that while you will save some money on interest charges by asking for lower rates, you will still pay more in interest than you would using the debt avalanche method.
Which Debt Payoff Method Should You Use?
Now comes the time when you need to decide which debt payoff method you should use. Unfortunately, there isn’t just one clear cut winner.
It all depends on you and your motivations. Some may argue that the debt avalanche method is the only way to go because you are saving the most interest.
While this is true from a purely finance point of view, that doesn’t make it right for everyone. The end goal is the same for everyone: to get out of debt once and for all.
Because of this, you have to choose the method that is the easiest for you to follow and that you will be motivated to stick to, regardless if it takes more or less time to get out of debt or if you pay more or less interest.
Remember what your true goal is. Anything else, interest savings or quicker payoff, are bonuses to the goal. In other words, they are icing to your debt free cake.
If the debt snowball plan sounds like it is the right fit for you, fill out the form below to get my debt snowball calculator.
It is an interactive excel spreadsheet that will order your debts from smallest balance to largest and show you how quickly you will be debt free.
Hundreds of people have downloaded this free debt snowball calculator to get out of debt. Don’t miss out and get your copy today!
Resources To Help With Getting Out Of Debt
At this point, you should be feeling fairly motivated to attack your debt. Before you run off and get to work, I have some resources to help you potentially speed up the process.
If you want to put more money towards your debt and aren’t able to stretch your budget any more, here are some ideas to help you.
- Lower your expenses. Sometimes when you run through your budget, you cut what you think you can and stop. But having a second set of eyes can help you see areas where you can cut back more. Check out this post to give you ideas on where to cut back more.
- Trim. They will run through your expenses and help you to find memberships and subscriptions you can cancel, as well as negotiate your cable bill for you. You can learn more here.
- Trim is another free app and they will negotiate your cable bill for you! You don’t have to do anything. They do all the work for you. You can learn more here.
- Qoins. This app rounds up your purchases and puts the money into an account that will go towards your debt. Simply link your accounts up and when you make a purchase, Qoins will round the amount to the next dollar, transfer that amount from your checking account, and put it towards the debt you tell it to. You can learn more here.
Once you go through the ideas above, there is still something else you can do to help pay off debt faster. You can earn more money.
By earning more money, you can put it towards your debt, allowing you to wipe it out faster.
Here are some quick ideas to help you earn more money.
- Determine how much you want to earn. I wrote a post that detail over 50 ways to start making money. You can choose to make an extra $100 each month all the way up to $1,000 or more. The choice is yours.
- Survey Junkie. You won’t get rich overnight taking surveys, but if you can commit to 30 minutes a day a few times a week, you can easily earn $100 or more per month. My favorite is Survey Junkie and you can get started here.
- Another option is to use Swagbucks. You earn points for taking surveys, shopping online and watching videos. You then cash in your points for money. New users get $5 for signing up and you can click here to join.
Don’t underestimate the power of earning some extra money. When I was in debt, I worked a part time job to help me pay my debt off. It wasn’t fun working 2 jobs. But times are different and there are endless ways of making money without working a second job.
The ideas above will help you to earn some side money without committing hours a day.
The goal isn’t to be at the top of the list, but to identify with someone who has as much debt as you or more and get inspiration that you too can pay off your debt.
I said it before, but it is important to understand: the ultimate goal is to be debt free. For most people, the debt snowball plan is the best.
But don’t just assume it is the best for you. Figure out which debt payoff method will keep you motivated the most to get out of debt and go with that.
Don’t over complicate things. Getting out of debt is your #1 priority.
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.
22 thoughts on “Your Ultimate Debt Snowball Plan To Eliminate Debt (And Free Debt Snowball Calculator)”
Good post Jon! I went with the avalanche method, but truth be told 3 of my 4 cards went down to 0 to 1.9% for me and the other held more firm and was at like 10% So, I killed the 10% card first and then went after the other ones. Ultimately though, I think the key point is just paying off the debt and finding whatever works best for you.
I originally went that way too, but ended up with the snowball method. I may have paid a little more in interest over the course of getting out of debt, but it helped to keep me motivated.
I think different things work for different people, but for me I would go with the avalanche method. Paying off a loan at 10% is always better in my mind than a loan at 0%.
I’m in the same boat Michelle. Higher interest rate for me works best.
I agree with the idea that whatever strategy for paying down debt works for you is what you should stick with. I’ve always felt that paying down higher interest debt first will save me money over the long run. I’m more concerned with saving money than paying off smaller balances first.
I have some friends like you who want to save on interest while others like to see smaller debts vanish. To each his own, as long as you stick to it.
We started snowballing our debt a few months ago. Sure, we may pay more interest in the short run but the piece of mind we get from knocking off the little guys really does help us sleep better at night. Our motto is one debt at a time…..
Great job! Do what works for you and you will find success!
One downside to all of these methods is that it takes a fair amount of self discipline to make the payments each month because in order to pay off your debt quickly you have to pay much more than the minimum due each month. Some people don’t have that self discipline…..in those cases they may be better off with a consolidation loan with a monthly payment that they HAVE to make each month to satisfy the terms of the loan.
Good point Brock…paying off debt does take a good deal of self discipline.
Human behaviour is an interesting thing. When it comes to debt repayment, know thy self is paramount. I agree with the comments above. It’s great to know the options and to pick the one that you know you can get your mind around and stick to.
Agree….pick which one works for you and that you can stick to.
Wow – very thorough post Jon. Great work.
I agree with Brock above, you should add in a consolidation loan into the mix and show the pros vs cons of that. You could even make a table comparing each of the methods. This would make a great authority post to try and rank in google for traffic.
Good thoughts Derek! Thanks for sharing. I’ll have to get to work on that!
When I was paying off my credit cards, I used a combination of the avalance and snowball method. I liked taking care of the small balances and getting them paid off (it was motivating!), then focusing on the higher interest debt. I sort of went back and forth paying off whatever I could, whenever I could and we did take advantage of moving some high interest debt over to a lower interest line of credit.
That’s great you combined two of the methods to find a solution that worked for you. Great Job!!
I like the snowpacolypse term you created there! I’ve never really had to deal with debt (besides for a mortgage) but I never would have really thought of the balance transfers, that’s a great way to save more money. I would have always approached it the avalanche way, knowing that I might not see progress in the sense of having less number of debts but knowing that in the long term I would be saving on interest.
I also find it strange that I’ve never really heard other people talk about balance transfers when dealing with debt. This is a real eye opener on how I will tell friends to deal with their debt in the future.
I think balance transfers aren’t talked about a lot because they can be dangerous. Look at me as an example. I went this route and got into more debt. But, once I figured out why I was in debt, I was able to use balance transfers successfully.
Love the snowball method for ability to achieve payoffs. Even though the avalanche method may save a little more money, could be easier to stick to the snowball method because of the constant reinforcement from seeing accounts dropoff.
That’s how I felt when I was paying off my debt. The motivation was the deciding factor to choose the snowball method.
Great article. I personally prefer the snowball effect method whenever I have to pay off debt. I’ve been fortunate enough to take on very little debt so far, and that has ultimately been the best strategy for me.
Either method will do the trick. I went math nerd and did a side by side comparison to see which saves the most money. Avalanche on the surface appears to because the higher rate gets paid first. But I’ve seen cases where Snowball pays off the fastest. All depends upon the balances, minimum payments and rates.
Using 0% balance transfers is an awesome strategy. Just be disciplined and don’t charge up the old card again!
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