What is Debt Snowball Method?

Full Definition

The debt snowball method is a debt repayment strategy in which a borrower with multiple debts makes only the minimum required payment on every debt except the one with the smallest outstanding balance, which receives any spare money available each month until it is cleared in full; the payment that was going towards the now-cleared debt is then added to the minimum payment on the next-smallest debt, and the process repeats, with the total amount being put towards debt clearance growing -- like a snowball rolling downhill -- as each successive balance is paid off. The method is deliberately built around psychology rather than pure arithmetic: clearing the smallest debt first delivers an early, visible win that can build motivation and confidence to keep going, which research and popular financial advice both suggest can matter more for many people's success than mathematical optimality, particularly for those who have struggled to stick with debt repayment plans before. The main alternative, the debt avalanche method, instead targets the debt with the highest interest rate first regardless of its balance, which minimises total interest paid over the full repayment period and is mathematically the cheaper approach in almost all cases; the debt snowball method can therefore cost slightly more in total interest, but many people find the sense of quick progress it provides makes them more likely to actually complete a debt repayment plan rather than abandoning a more theoretically efficient one partway through.

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