The Debt Snowball Method + A Free Worksheet

It's easy to become overwhelmed when it comes to paying off credit card debt. Many people are unsure where or how to begin, especially if they have multiple credit cards with different creditors, balances, and interest rates. American adults carry approximately $5,673 in credit card debt on average, and delinquencies (past due payments) are increasing. If you're having trouble getting out of debt, you should try the debt snowball method! Because of its simple yet rewarding method, this popular debt repayment strategy has proven to be successful for many people. This article will explain what it is and how you can use it to achieve your personal financial goals and become debt-free. You can also get our free debt snowball worksheet!

What exactly is the debt snowball strategy?

If you have multiple credit card balances, the debt snowball method assists you in prioritizing debt repayment by the smallest amount. The idea is that, like a snowball rolling down a hill, the amount you pay toward each debt accumulates over time, and your debt is paid off faster. It also allows you to concentrate on your repayment strategy rather than calculating how much to pay each month. Using the debt snowball spreadsheet to track your debt payoff plan is also essential.

Here's a quick rundown of how the debt snowball method works:

Regardless of the interest rate, prioritize the smallest balance first.
Pay as much as you can toward that small balance while paying the minimum on your larger debts.
After you've paid off the smallest balance, apply the same payment to the next smallest balance. This is in addition to the minimum payment you had previously made.
Continue in this manner until you've made a massive snowball payment on your largest debt.
Eventually, the debt is paid off.

Example of the debt snowball method

Assume that you have four credit card balances totaling $4,000, $1,000, $3,000, and $2,000. How do you decide which one to prioritize in terms of repayment? With the debt snowball method, you simply begin with the smallest debt and work your way up, as follows:

The first debt is $1,000 ($50 minimum payment).
Second debt: $2,000 (minimum payment of $65).
Third debt: $3,000 ($70 monthly minimum payment).
Fourth debt: $4,000 (minimum payment of $75).

Assume you have $1,000 to contribute to your debt each month.

The first month of your debt snowball

You would make the minimum payments to debts 2, 3, and 4 in month one. On debt 1, however, you would make the minimum payment plus an additional $740. That would be as follows:

First debt: $1,000 (minimum payment of $50) + $740
Second debt: $2,000 (minimum payment of $65)
Third debt: $3,000 ($70 monthly minimum payment)
Fourth debt: $4,000 (minimum payment of $75)

Total amount paid toward debt = $1,000

The second month of your debt snowball

You would have paid off debt 1 by month two. However, in addition to the minimum payment, you would now be paying the money transferred from debt 1 to debt 2. Debts 3 and 4 would continue to receive only the minimum payment.

First debt: $1,000 (minimum payment of $50) + $740 PAID OFF!
$2,000 second debt ($65 minimum payment) + $50 debt 1 minimum payment + $740.
Third debt: $3,000 ($70 monthly minimum payment).
Fourth debt: $4,000 (minimum payment of $75).

Total amount paid toward debt = $1,000 After debt number two is paid off, you would continue to make the minimum payments on debts number three and four. Continue in this manner until you have completely paid off debts 3 and 4.

What makes the debt snowball method so effective?

Humans thrive on quick wins, so paying off the smallest balances first, regardless of interest rate, allows you to make rapid progress. As a result, you are motivated to attack the remainder of your debt. When you do something rewarding, such as pay off debt, your own internal rewards system is activated, releasing dopamine. This feel-good neurotransmitter is in charge of pleasure and influences your mood, attention, and motivation.

What about interest charges when using the debt snowball method?

Because the debt snowball method focuses on debt balances rather than interest rates, you may end up paying more in interest if you use this method. If that is a concern, you might want to look into the debt avalanche method instead.

What is a debt snowball worksheet?

The best part about the debt snowball method is how easy it is to implement. A debt snowball worksheet can help you prioritize your debts and plan your debt repayment strategy (You can download ours below). You will list your debts on the worksheet from smallest to largest balance. Remember that seeing your debts disappear will keep you motivated to keep going until you are debt-free. You should also include the payment priority, debt name, interest rate, and monthly minimum payment. Start at the top and work your way down, paying off your smallest debt first. After a debt is paid off, you apply that money towards the next item. Again this causes the "snowball effect" to your debt. Watch your debt disappear with this easy-to-use method! However, you can still use the debt snowball worksheet for the avalanche method. For example, rather than listing your debt from smallest to largest, you will list your debt according to the highest interest rate. The main thing is to use this worksheet to track your progress.

Make your debt snowball spreadsheet

You can create your debt snowball spreadsheet in Excel or Google Sheets if you're creative. The great thing about Google Sheets is that the basic version is free if you have a Gmail account. It's also very simple to use, and you can personalize your worksheet with different fonts and colors. This debt snowball spreadsheet employs the debt snowball method, which can assist you in improving your credit score. It allows you to focus on reducing high balances to improve your credit and use the debt snowball method to pay off the remainder of your debt. The debt avalanche method is an alternative to the snowball method. Regardless of the balance size, you can choose to pay off your credit card debt with the highest interest rates first. This is referred to as the avalanche method. In essence, this strategy will save you money on interest payments. Your overall interest payments will most likely be lower if you prioritize high-interest debt. Let's use the same credit card balances from the previous example — $4,000, $1,000, $3,000, and $2,000. Let us assign an interest rate to each of them:

$1,000 @ 10% (minimum payment of $50).

$2,000 @ 7% (minimum payment of $65).

$3,000 @ 8% (minimum payment of $700).

$4,000 @ 3% (minimum payment of $75).

Using the avalanche method, you would prioritize debt repayment based on interest rate rather than debt amount. For example, if you had $1,000 per month to pay off your debt, and that is what your first fortnight would look like:

The first month of your debt avalanche

First debt: $1,000 @ 10% (minimum payment of $50) + $740
Second debt: $3,000 @ 8% ($70 minimum payment) • Third debt: $2,000 @ 7% ($65 minimum payment)
4th debt: $4,000 at 3% (minimum payment of $75)

Total amount paid toward debt = $1,000

The second month of your debt snowball

Once you've completed the first highest (debt 1), rinse and repeat for the second-highest, and so on. Apply the minimum payment for debt 1 PLUS the $740 to debt 2, and make minimum payments on debts 3 and 4. You'd keep going until you paid off all of your credit card debt.

First debt: $1,000 @ 10% (minimum payment of $50) + $740 PAID OFF!
Second debt: $3,000 at 8% ($70 minimum payment) + $50 debt one minimum payment + $740
Third debt: $2,000 at 7% (minimum payment of $65)
Fourth debt: $4,000 at 3% (minimum payment of $75)

Remember that this is the most difficult approach since there are no quick wins, and you may feel less motivated. All that said, with focus and determination, this solution operates and will save you the most money in interest payments possible.

In conclusion

The key insight is that you must have a plan in place to pay off your debt. The snowball method is fantastic. Thousands of people have tried, tested, and successfully implemented it. Whatever path you take, you will be successful if you maintain a consistent mindset and surround yourself with people who will motivate you to do better. All you have to do is decide if you're ready, create a budget and debt-paying strategic planning, and get to work. Remember to get your free debt snowball spreadsheet!