How to Use the Snowball Method to Repay Debt?

What is the Snowball Method? 

The snowball method is a debt repayment strategy where you repay the loan in a strategic way, to help you clear off the loan and build momentum to repay the next one. In this method, you work on the smallest loan to the largest. You have to still continue making the minimum due on other debts, but any extra money will go towards clearing off the smallest loan.

When the smallest loan is cleared, you roll the funds towards the next smallest loan, creating a snowball effect. 

As you repay the smallest loan first, it builds momentum. The momentum gives a confidence boost to clear the rest of your debts and help you stay disciplined. As the smaller debts get cleared, the borrower gets more motivated to clear the rest of the debts early.

Why Choose the Debt Snowball Method to Repay Debt? 

The debt snowball method focuses on clearing the debt from smallest to largest. This approach gives tangible results quickly, which helps one feel more motivated to clear the remaining debt.

Advantages of Debt Snowball Method:

• Tangible Results: When the smaller debts get cleared, it gives momentum to clear the remaining debts as well.
  
• Boosted Confidence: It gives an immediate boost when one loan gets cleared.
  
• Easy to Follow: Fairly easy to follow, as you focus on the smallest debt and more on the next small debt.
  
• Improves Consistency: Tangible results help one follow a disciplined structure.
  
• Psychological Relief: When one sees debt disappear one by one, it gives a big boost and confidence to clear the remaining ones with discipline.

Step-by-Step Guide to Implement the Snowball Method 

The Snowball method focuses on clearing the smallest debt first. Here is our step-by-step guide to implement the method if you plan on clearing multiple debts:

Step 1: Make a List of All Your Debts

List all your existing debts from smallest to largest. Ignore their interest rates, just focus on the loan balance. 

Step 2: Pay The Minimum Due Toward All Debts Except The Smallest

Keep making minimum debt payments towards existing debts to avoid penalties.

Step 3: Allocate Extra Funds To The Smallest Debt

If you have any extra funds from your monthly budget, a bonus or end up saving more from cutting down other expenses, utilise them to clear off the smallest debt. 

Step 4: Once Cleared, Roll That Amount Into The Next One

When the smallest debt gets cleared off, utilise that amount to clear off the next smallest debt. 

Step 5: Repeat Until All Debts Are Cleared

Keep paying off debts consistently, and eventually, every debt gets cleared, allowing for more cash flow.

Monitor your progress, track expenses and cut out any unnecessary spends. By following the above steps, you will clear all your debts in a focused manner and enjoy being debt-free earlier. 

Also Read: What is Debt Management Program and How It Works? 

Snowball Method Vs. Other Debt Repayment Strategies

The snowball method is most effective for borrowers who need motivation and a confidence boost to stay consistent with payments. It’s ideal when debts are spread across credit cards, small personal loans, or EMIs of varying amounts. On the other hand, financially disciplined individuals who can stay focused without early wins may benefit more from the avalanche method.

Common Mistakes to Avoid When Using the Snowball Debt Repayment Method

The snowball debt repayment strategy is effective in clearing debts. But there are a few factors to keep in mind when using this method, to ensure there are no losses or more harm done. Here are some common snowball method mistakes to watch out for:

Ignoring Interest Rates Entirely:

While this method focuses on the loan balance, it is important to take into account high-interest loans as well. If one keeps a high-interest debt on a minimum payment, it can cause unnecessary financial strain.

Not Tracking Other Expenses: 

When you are clearing debts, take into account your other expenses. Track them and see if some expenses can be cut down. This frees up more funds to clear the debt. 

Taking on a New Debt or Credit:

Adding new loans or swiping credit cards during repayment cancels progress. Stick to your repayment plan and avoid fresh borrowing unless essential.

Not having an Emergency Fund:

Aggressively paying debts without a backup fund can force you into new debt during unexpected expenses. Keep at least a small reserve before starting.

By steering clear of these mistakes, you can ensure your snowball journey stays on track and leads you steadily toward a debt-free future.

How the Snowball Method Works in India’s Financial Context

In India, we have many individuals with different types of debts, be it credit bills, personal loans, education loans or even consumer durable EMIs. If one has multiple debts to pay off, one needs to strategically tackle them to manage the debt. The snowball method in this case can be a good approach to manage them. It works by prioritising clearing the debt from the smallest to the largest amount. The quick results motivate one to keep a consistent payment routine, thus helping them clear the rest of the debts as well. 

Tips to Manage Debts Better

• Utilise tools like Walnut, Excel trackers, to keep track of all different types of debts.
• Keep an emergency fund to take care of any expenses that may arise in time
• Avoid taking on any new credit until you have cleared all the existing ones
• Keep a check on credit score, and with consistent payments, your score will likely improve. 

Also Read: How to Improve CIBIL Score: 10 Smart Tips to Go from 600 to 750

Case Study: Real-Life Success Story Using the Snowball Method

Ritika, a 32-year-old marketing professional from Pune, found herself juggling multiple debts: two credit cards, a small personal loan, and an education loan EMI. With payments scattered and interest rates piling up, she often felt overwhelmed and unsure where to begin.

After much research, Ritika decided to try the snowball method. She listed her debts from smallest to largest, regardless of interest rates. Her smallest balance was a ₹15,000 credit card bill. By directing all extra funds toward clearing this first while continuing minimum payments on other loans, Ritika experienced her first win within two months.

This small win motivated her to stay consistent. She rolled the cleared payment amount into her next smallest debt, another credit card of ₹35,000. Eventually within 14 months, she was able to clear three debts and was left only with her debt consolidation loan. Her story reflects how the snowball method can turn financial challenges into a clear, motivating path toward debt freedom.