Let’s take a deep dive into the Debt Snowball Method, how it works, why it is so popular, and if it really works. When Googling “Debt Payoff Plan” you will certainly see several results mentioning debt snowball. This method was made popular by Dave Ramsey through his books and his world-class course, Financial Peace University, but has been around long before.

How Does the Debt Snowball Method Work?

Before determining if the Debt Snowball Method works, let’s walk through how it works.

To start, you must get organized and know where you are focusing your money. That means sitting down and making a list of all the creditors and the amounts you owe. Now you know what to Zero In on! That is why “Demolish Debt” is one of the 7 targets you see in our blog: Zero In On This.

But the priority of this list is where the disagreements come into play. There are 2 popular methods in ordering your list of debts: Debt Snowball and Debt Avalanche. (There are many others that are not as popular as these 2 and will not be covered here.)

The debate is: Which of the 2 methods results in you paying off the total debt fastest?

Here is how Investopedia describes the two:

“Both methods require that you list out your debts and make minimum payments on all but one debt. … In the debt avalanche method, you pay extra money toward the one debt with the highest interest rate. With the debt snowball method, you pay down the smallest debt first and work your way up, regardless of the interest rate.” (Investopedia)

Let’s take a list of 4 debts as an example and see how it would look using each method.

LIST IN DEBT AVALANCHE ORDER

• Store Credit Card, 25.7% interest rate, $9,855 balance, $250 minimum payment
• Car Loan, 10.6% interest rate, $32,047 balance, $425 minimum payment
• MasterCard, 9.9% interest rate, $3,290 balance, $50 minimum payment
• School Loan, 4.45% interest rate, $24,731 balance, $120 minimum payment

LIST IN DEBT SNOWBALL ORDER

• MasterCard, 9.9% interest rate, $3,290 balance, $50 minimum payment
• Store Credit Card, 25.7% interest rate, $9,855 balance, $250 minimum payment
• School Loan, 4.45% interest rate, $24,731 balance, $120 minimum payment
• Car Loan, 10.6% interest rate, $32,047 balance, $425 minimum payment

Consequently, if this person paid only the minimum payment for all 4 debts, it would take 31.9 years, which is 383 months, to be debt-free. That’s not acceptable.

The plan is to get out of debt as fast as possible. In fact, using either method, you make the minimum payments on all the debts except the one at the top. The one on top gets everything you can throw at it. That means, after the mandatory bills and necessities have been paid, all other money needs to attack the debt!

Does the Debt Snowball Method Work?

So, what is the result? Does the Debt Snowball Method Work? Did it do better or worse than the Debt Avalanche Method?

Well, first I need to assume a set amount that can be applied towards the debt. Of course, you would have a variety of Inflow each month and that is why budgeting is so important. But, for simplicity, I will use a static monthly dollar amount.

In this example I am going to use $2000.

Here are the results:

RESULTS: DEBT AVALANCHE

• Total principal & interest: $79,423
• Total Interest: $9,533; Percentage paid in interest: 12%
• Years until debt free: 3.33 Years or 40 Months

RESULTS: DEBT SNOWBALL

• Total principal & interest: $82,077
• Total Interest: $12,165; Percentage paid in interest: 14.82%
• Years until debt free: 3.5 Years 42 Months

Wow, it looks like this stuff works!! Pay only minimum payments for over 31 years, or do either one of these methods and be debt-free in 3 – 3.5 years? Let’s get out of debt!!!

Okay, so they both look great, but going only by the numbers, it looks like you should pick the Debt Avalanche. You would be free of the shackles of debt payments 2 months sooner.

The truth is … that rarely happens. It is extremely difficult to stick to any plan. I remember trying to lose 20 pounds. I tried everything, so I’d thought. But then I hired a coach who helped me form a plan where I would see results weekly and sometimes daily. Those results kept me motivated and I reached my goal in record time.

I find that people are more likely to quit the Debt Avalanche plan more often than the Debt Snowball.

Let me break down the milestones of each method to show you why.

DEBT AVALANCHE MILESTONES

• First Debt: Store Credit Card, paid off in month 8
• Second Debt: Car Loan, paid off in month 27
• Third Debt: MasterCard, paid off in month 28
• Fourth Debt: School Loan, paid off in month 40

DEBT SNOWBALL MILESTONES

• First Debt: MasterCard, paid off in month 3
• Second Debt: Store Card, paid off in month 11
• Third Debt: School Loan, paid off in month 27
• Fourth Debt: Car Loan, paid off in month 42

So, do you see why one method is superior to the other?

Why does the Debt Snowball Method Work?

Many people start off strong. They roll up their sleeves, squeeze every penny out of their budget, and get to work! The list of debts is written out with a permeant marker on a big poster board. They are going down!

With the Avalanche Method, the first debt is finally paid off in the eighth month. That wasn’t too bad, but it took the better part of the year. Time to celebrate a little and then get back to work.

The second debt takes 19 more grueling months. Most people quit somewhere during this stretch. It’s a long road and the end is too far to see. Those letters in the mail that report “Paid in Full” are truly motivating, and it’s been a long time since one has come.

Quick Wins

The Debt Snowball Method works because of the quick wins that are inevitable. The first debt is paid off in 3 months and you do a happy dance. One debt down and the letter is in the mail. You fill in your Debt Demolition Tracker and pin that “Paid in Full” letter to your dream board and you feel good!

The second debt falls just eight months later. That’s two down in less than a year. This stuff works! Your dream is looking like it is going to be a reality.

So, here is where the motivation gets addicting, and where a good coach may challenge you with some options. You have paid off two out of four debts. What could you do to finish off this debt even sooner? Pick up some extra work? Sell the car and drive a hooptie for a little while? Sure, you could do these things while working the Debt Avalanche, but it wasn’t until you made progress before you could buy into making deeper sacrifices. Momentum is powerful.

Debt Demolition Works because …

There are two main forces used in the world of demolition. The first is a powerful and destructive device that can crush, smash, and knock down the building being demolished. This can come in many forms from bulldozers to wrecking balls. As a kid, I loved seeing documentaries and even cartoons of wrecking balls wreaking havoc on its intended target. When it comes to Debt Demolition, instead of a wrecking ball, you use the Snowball.

The second main method of destroying an unwanted structure is to use explosives. When imploding a building, engineers use dynamite. These explosives must be placed strategically inside of the tower and ignited at precise times and locations within. The Debt Demolition process uses this strategy by way of a powerful ‘why’, which you can read about in this blog post, and a powerful plan, which you can learn about here.

Getting out of debt accelerates when you use all of these together.

I remember increasing the size of our debt snowball by going to work a part-time job at The Home Depot. That job was miserable. But our powerful internal why drove me to keep going. I had a great plan, but it was seeing that snowball increase in size and build up momentum that kept me motivated.

The progress was so motivating that I began selling things I never thought I would sell. Momentum is addicting.

We updated our snowball often and posted the progress on our dream board. That visual of our debt being demolished helped us demolish the debt.

That’s REAL momentum. That’s the power of the Debt Snowball Method.