Debt snowball

The debt snowball is an order, not an amount. Every debt gets its minimum payment so nothing goes late, and every extra dollar goes to the debt with the smallest balance until it is gone; then its minimum and the extra both move to the next smallest, so the payment on each successive debt is larger than the last. The total paid each month never changes, and the number of debts falls as fast as it can, which is the method's point: an account closed within a few months keeps people paying when a plan ordered by interest rate would stall.

In a sentence

• "With the debt snowball, the $600 store card goes first, even though the car loan has the higher balance and the credit card the higher rate."
• "Once the store card was gone, the debt snowball put its $425 onto the credit card, on top of that card's own minimum."
• "The debt snowball costs a little more in interest than the avalanche, and it is the one more people finish."

How it works

1. List every debt by balance, smallest first, with its minimum payment. Ignore the interest rates for the ordering.
2. Pay the minimum on all of them, every month. Nothing goes late.
3. Decide the extra, the fixed amount above the minimums the budget can send to debt each month, and send all of it to the smallest balance.
4. When that debt is paid off, roll its whole payment onto the next smallest: its old minimum plus the extra. The total leaving the budget stays the same.
5. Repeat until the last debt is gone. The rolled payment grows with every debt cleared, which is the snowball.

Payment on the target debt = its minimum + the extra + the minimums of every debt already paid off

The mechanism that does the work is the rolling payment, not the order. The order decides which debt clears first and how much interest the whole plan costs.

An example

Three debts, and $400 a month extra above the minimums.

The budget sends $730 to debt in month one and $730 in month twenty; only the destination changes. The store card is gone in the second month, the credit card takes the $510 from then on, and when it clears the car loan receives the full $730 against a minimum of $220, which is what turns a loan with more than three years left into a loan with one. The whole plan finishes in under two years.

Why it matters

The snowball is a behavior method. Paying extra across all the debts at once clears none of them early and leaves every balance charging interest; sending it all to one place clears an account, and a cleared account is the most reliable reason people keep going. Each closed debt also removes a minimum payment from the month, which makes the budget easier to run before the plan is half done. The cost is interest: because the order ignores the rates, the snowball pays somewhat more than the avalanche on the same debts, and how much more depends on how far apart the rates are.

Debt snowball versus debt avalanche

Both methods pay every minimum and send everything extra to one debt at a time. The snowball orders the debts by balance, smallest first; the avalanche orders them by interest rate, highest first. The avalanche always costs less in interest and is never slower; the snowball always clears its first debt sooner. On the same three debts the difference is a few months on the first payoff and some tens or hundreds of dollars of interest over the plan, and the right choice is the one you will keep up. See Debt snowball versus debt avalanche, with a worked example.

Common questions

Does the debt snowball cost more than the avalanche? Usually, by the interest on the higher-rate balances that wait their turn. On debts whose rates are close it costs almost nothing extra; on a low-rate car loan and a high-rate card ordered the wrong way round it costs more. The avalanche is never more expensive.

Should I stop saving while I pay off debt? Keep a small emergency fund so the next surprise does not become a new debt, and keep any retirement contribution an employer matches. Beyond that, the extra that goes to the snowball is the same money that would otherwise be saved, and the choice between them turns on the interest rate of the debt.

What if two debts have nearly the same balance? Put the one with the higher interest rate first. The snowball's order is a rule for motivation, and when the balances are close the rate is the tiebreaker.

Should the mortgage be in the snowball? Usually not. The snowball is for the consumer debts, cards and car, student and personal loans, whose minimums crowd the month. A mortgage is large, low-rate and long, and it is usually left at its regular payment until the rest is gone.

What happens to the payment when the last debt is gone? It is the largest amount of free cash flow the household has had in years, and the most common mistake is to let it dissolve into spending. Decide before the last payment where it goes, a savings transfer or an investment, and set it up for the following month.

Go deeper

• Debt snowball versus debt avalanche, with a worked example runs both orders on the same debts, month by month.
• The Debt payoff calculator takes your cards and loans and shows the payoff date and the interest under each method.
• How paying off debt raises your net worth explains what every principal payment does to the other number.

Where it shows up in Zypper

Zypper keeps the balances and the payments in view. Credit cards and loans, including auto, student and personal loans, connect alongside checking and show their balances on the liability side of net worth, charted over time, so the total falling by the principal each month is a line rather than a set of statements. Each card payment and each loan payment is identified as a recurring group with its next expected date and amount, and a card payment is linked to its checking side as one transfer so it never reads as spending. The extra payment is a budget category with a fixed amount, and Left to budget, your expected income minus everything budgeted for spending, shows whether the plan still fits after it. See Net worth tracking, Supported account types, and Recurring transactions and bill tracking for the details, or get started with Zypper to watch the total fall.