The Debt Snowball Method

Where the debt snowball comes from

Dave Ramsey popularized the method. Ramsey Solutions, his company, teaches it as Baby Step 2: pay off all debt except your house using the debt snowball. It comes after Baby Step 1, a $1,000 starter emergency fund, and Ramsey’s version tells you to list debts from smallest to largest balance regardless of interest rate.

Ramsey Solutions defends the rule on behavioral grounds: clearing a whole debt quickly keeps you motivated, and motivation is what gets the rest paid. Researchers have tested that claim, and the results are summarized below. Our calculator follows Ramsey’s order and adds one tie-break: if two balances match, the higher APR goes first.

How the debt snowball works, step by step

1. List every debt except your mortgage, with its balance, APR and minimum payment.
2. Sort by balance, smallest first. Ignore the interest rates.
3. Pay the minimum on everything so no account falls behind.
4. Send every extra dollar to the smallest balance until it’s paid off.
5. Roll the freed payment forward: the old minimum plus your extra now goes to the next-smallest balance. Repeat until the list is empty.

Your total monthly budget stays the same the whole way. It’s the sum of your starting minimums plus your extra payment. As debts drop off, that fixed budget gets concentrated on fewer accounts, which is the snowball.

A worked debt snowball example

Say you have three debts and can add $250 a month on top of the minimums:

Your monthly budget is $655.00. The snowball pays the store card first because it has the smallest balance, then the Visa, then the personal loan.

Here’s how the plan plays out:

• The store card is gone in 5 months. That’s your first win.
• You’re debt-free in 2 years, 5 months.
• Total interest comes to $3,164.65, and you pay $18,664.65 in all.

Compare that with paying only the same minimums, with no extra and no rollover: 9 years, 10 months and $12,134.88 in interest.

The avalanche method, which pays the highest APR first, would attack the Visa at 27.99% before the store card. On this list it pays $2,997.43 in interest, a difference of $167.22. Its first payoff takes 1 year, 4 months. That trade (a faster first win against lower total interest) is the whole snowball vs avalanche debate, and the snowball vs avalanche comparison walks through it.

How each month is calculated: every debt is charged one month of interest at APR ÷ 12, rounded to the cent. Then each minimum is paid. Whatever is left of the budget goes to the target debt. If the target is paid off partway through a month, the leftover goes to the next debt that same month. Card issuers usually charge interest daily on your average balance, so a real statement can differ from these figures by a few dollars. The methodology page has the full rules.

Why the debt snowball works: the research

The math says the snowball usually costs more interest than paying the highest rate first. Its case rests on behavior, and several peer-reviewed studies have tested that side.

Closing accounts predicted getting out of debt. David Gal and Blakeley McShane, then at Northwestern’s Kellogg School of Management, studied a random sample of 5,943 clients of a debt settlement firm (Journal of Marketing Research, 2012). Clients who closed a larger share of their accounts were more likely to eliminate their debt, regardless of the dollar size of the closed accounts. The dollar balance of closed accounts did not predict success once the share of closed accounts was taken into account. In that setting the firm, not the client, chose which accounts to settle, which the authors say makes it close to a natural experiment. It’s still observational data from people in debt settlement, not a controlled trial of the snowball.

Concentrating payments raised motivation. Keri Kettle and colleagues combined a field study of people with multiple debts and three experiments (Journal of Consumer Research, 2016). Putting repayments on one account at a time, instead of spreading them out, made people more motivated to get out of debt and led them to repay more aggressively. The effect was strongest when the payments went to the smallest balances, because people judged progress by how much of a single account they had cleared.

Small-to-large order sped up task completion. Alexander Brown and Joanna Lahey ran lab experiments on mildly unpleasant tasks split into parts of unequal size (Journal of Marketing Research, 2015). People finished faster when the parts ran from smallest to largest than when they ran largest to smallest.

The counterpoint. Moty Amar, Dan Ariely and colleagues found the same pull toward small debts, but as a cost (Journal of Marketing Research, 2011). In a debt game with real payouts at stake, people kept paying off small debts first even when larger debts carried higher rates, which is the costlier order. The authors called it debt account aversion. Stopping people from fully paying off small debts, and pointing them to how much interest each debt had built up, helped them cut total debt faster.

Put together: the snowball gives you quick, visible progress, and that progress appears to keep some people going. You pay for it in interest when a small balance has a lower rate than a larger one.

Cons of the debt snowball

• It can cost more interest. When a large balance carries the highest rate, the snowball leaves it growing while you clear cheaper debts. The worked example above puts a number on that.
• The first win isn’t always quick. If your smallest balance is still several thousand dollars, the motivational payoff the method depends on takes a while.
• It ignores promo deadlines. A deferred-interest store card or a 0% balance transfer that is about to expire may need paying down first, whatever its size. Use a custom order for that.
• It doesn’t change spending. Rolling payments forward only works if the freed money isn’t absorbed by new charges.

When your smallest balance also has your highest rate, none of the cost applies. Both methods pick the same order and produce the same result. The debt avalanche method guide covers the other side, and which debt to pay off first covers the cases where neither rule fits.

FAQ

Does the debt snowball really work?

It works in the sense that it gets debts paid if you keep up the payments. Research links paying off whole accounts with sticking to the goal, including a 2012 study of 5,943 debt settlement clients. It usually costs more interest than the avalanche method, so it trades money for motivation.

What are the cons of the debt snowball method?

The main con is interest. When a larger debt has a higher rate than a smaller one, the snowball leaves the expensive debt growing longer. The first win can also be slow if your smallest balance is big, and the rule ignores promotional APR deadlines unless you change the order yourself.

Is the debt snowball better than the avalanche?

The avalanche method usually pays less interest because it targets the highest rate first. The snowball gives you your first payoff sooner. If you’ve started and stopped payoff plans before, the quick win may matter more. If the interest gap on your debts is large, the avalanche saves real money. Compare both in the calculator.

What is Dave Ramsey’s debt snowball method?

It’s Baby Step 2 of Ramsey’s plan. You list all debts except your house from smallest to largest balance, regardless of interest rate. You pay minimums on everything and put every extra dollar on the smallest debt. Ramsey places it after a $1,000 starter emergency fund, which is Baby Step 1.

Should my mortgage be in the debt snowball?

Ramsey’s version leaves the house out. If your mortgage is your largest balance, it would sit last in any snowball anyway, years after your other debts are gone. Paying it off early is a separate decision. Our mortgage extra payment calculator and payoff guides cover it on its own.

Do I need an emergency fund before starting the snowball?

Ramsey’s plan puts a $1,000 starter emergency fund first. The reasoning is that without some cash, a surprise bill goes on a card and undoes your progress. How much to keep is your call, and our guide on paying off debt or investing covers the tradeoff between saving and extra payments.