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What is the debt snowball method for becoming debt free?

What is the debt snowball method for becoming debt free?
Like a snowball rolling down the hill, the debt snowball method will help you enjoy a life free from debt.

Bite-Size Read:

  • Debt is one of the biggest barriers to saving and growing your money.
  • One way to pay your debt off is the snowball method for becoming debt free.
  • The snowball method of paying off your smallest debt first can motivate you to ditch debt for good.


Debt is bad for your health.

Research backs this up. Northwestern University found that young healthy people carrying high debt reported poorer health than their peers, including high blood pressure. Debt weighs on you because it’s an obligation and you stress about being able to pay it back in the future. Any method for paying back debt is worth exploring. That includes the debt snowball method.


Picture a snowball rolling down a hill.

That snowball starts off one size but it becomes bigger as it picks up more snow. By the time that snowball reaches the end of the hill, it’s much larger than it started out as. The debt snowball method applies that idea to your debt.

The benefits of the snowball method are that it motivates you to get out of debt. Research shows that this can be helpful because people are more motivated to pay down debt when repayments are concentrated into consumers smallest accounts. The snowball method could support you pay off debt right now and grow your money long-term.


Debt snowball method
One debt snowball coming right up


Here’s our breakdown of the debt snowball method for becoming debt free: 


1. List your debts from smallest to lowest

Write a list of every debt you currently have. This could be car repayments, student debt or personal loans. Then order them from the smaller amount to the largest.


2. Continue to make all your repayments

This is non-negotiable. Whatever debt repayment method you choose, you must continue to make the minimum repayments on all your loans. Not paying your debts flags to credit providers that you have issues paying back loans. This might stop you from getting future credit, such as a home loan.  


3. Focus on paying off your smallest debt

Look at your list of debt from the smallest to largest debt and start at the top. Focus on and start putting as much money as your budget can spare towards your smallest debt.  


4. Repeat step 3 until you’re debt free

Once you’ve paid off your smallest debt, tackle the next smallest debt on the list. Continue to pay down each loan until you’re finally debt free.  


Snowball method example
Well Justin, here’s an example


Example of the snowball method in action:

A Chloe is 25 and has 3 debts she’s carrying:

  • $10,000 car loan
  • $2,000 personal loan; and
  • $60,000 student loan.

Following the snowball method, here’s the order in which Chloe would pay back her loans:

  1. $2,000 personal loan
  2. $10,000 car loan
  3. $60,000 student loan

She would continue to make minimum payments on every loan and make extra payments on the personal loan. She would then pay off the car loan, before focusing on the student loan. Once that’s gone, Chloe would officially become debt free.


Before you start the debt snowball method:

  • Know that this method assumes you have a steady income to pay back your debt on a regular basis.
  • You might incur more interest overall by not paying down the highest interest debt first.
  • You may want to consider an emergency fund to back you up in case you lose your income.  


Snowball method in action
Time to start pushing your own debt snowball


Remember that the best method for paying down debt is one you can stick to.

Debt can be a hazard to your health and future wealth so is worth tackling as a priority. If you want some added motivation, give the debt snowball method a try to start becoming debt free.

Written by Kate Crowhurst

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