Understanding the debt snowball method

If you’ve got outstanding debt, then you might be looking for ways to clear it and have come across the ‘snowball method’. At Lowell, we know how important financial knowledge and finding the right information is, especially when it comes to debt, which is why we’ve created this guide.

In this guide, we’ll be covering the basic information you need to know including how the debt snowball method works along with the advantages and disadvantages.

What is the debt snowball method?

To put it simply, the debt snowball method is when you pay the lowest amount possible towards each of your debts whilst focussing on clearing the smallest debts first - the aim being to clear one debt at a time from least to most expensive.

The reason it’s called the debt snowball method is because the monthly repayments will increase as you clear your debts from least to most expensive. This is similar to how a snowball gradually gets bigger as you roll it.

How does the debt snowball method work?

To get started with the debt snowball method, you would first pull together a list of your debts and put them in order of least to most expensive. You don’t need to take interest rate into consideration when ordering with the debt snowball method as the focus is the monthly repayment amount.

Then, you would continue paying the minimum payment possible on all of your debts, except the smallest where you would pay as much as you can. Once you’ve paid off your smallest debt, you would then move on to the next on your list. Each time a debt is cleared, you’d take the money you were using to pay towards it and apply it to the next one. This process is repeated until every debt is cleared.

How long does it take to pay off debt using the snowball debt method?

There is no particular timescale associated with using the snowball debt method. This is because everybody’s circumstances and debt is different. Therefore, the time it takes to become debt-free using this strategy will depend on various factors such as your financial situation, how many different debts you have, who your creditor is, how much you owe, and interest rates on your debts.

What are the advantages of the debt snowball method?

As with any debt repayment strategy, the debt snowball method does have its advantages, some of which are listed below:

  • At the start of the debt snowball method, your monthly payments might be less since you’re focusing on the smallest debts.
  • It can feel as though you’re paying off your debts quicker and the little wins may be motivating for some people who are struggling with not seeing their debts being paid off.
  • It may make it easier to handle your finances over time as you’ll be clearing debts quicker, so you’ll have fewer creditors to pay.
  • Following the debt snowball method can help you focus on one debt at a time.
  • This is a simple strategy to follow and stick to since you just order your debts from least to most expensive and focus on paying off one at a time.
  • As it’s not a formal arrangement, the snowball debt method technically won’t impact on your credit score. However, this doesn’t mean that other things can’t impact it, such as defaults.

What are the disadvantages of the debt snowball method?

Along with the advantages, there are some disadvantages associated with the debt snowball method including:

  • The debt snowball method doesn’t take interest rates into account. Therefore, it’s possible that the larger debts might also have higher interest rates which could mean you pay more in interest over time.
  • It can take longer to become completely debt-free than if you focused on clearing the larger debts first.
  • The monthly repayments will start to increase as you begin to clear your smaller debt. Therefore, you’ll need to be able to afford to pay more as this happens.
  • Since it’s not a formal arrangement, you will need to be able to stick to the strategy yourself.

Is the snowball method for debt right for me?

Before deciding to follow the snowball method for debt, you should sit down and have a look at your own personal situation and figure out whether it’s right for you. This is because no journey to clearing debt is the same for each person.

One initial point is that if you don’t feel as though you’d find paying off smaller debts rewarding, then the debt snowball strategy might not be the best option for you. However, there are other debt repayment strategies and ways to pay off your debt apart from the debt snowball method. For instance, our budget calculator tool can help you understand where you could be saving money and take control of your finances.

For anyone unsure of their next steps in dealing with their debt, it’s always best to reach out for help. There are various independent organisations such as StepChange and National Debtline who will be able to offer free and unbiased debt advice and guidance based on your circumstances.

At Lowell, we also know how important financial knowledge is, and the difference it can have in making informed decisions. That’s why we’ve created our debt dictionary full of helpful information and definitions of common terminology you may come across on your debt journey.

If you’re struggling or have any questions about your debt with Lowell, please do get in touch with us. We want to support our customers in any way we can, and our team are friendly and specially trained to be considerate of your situation.

To find out more information on debt-related topics and how we can work together if you’re a Lowell customer,  you can find a range of helpful guides and articles by visiting our Debt Guidance Hub or over on the Lowell blog.

First published: 16th August, 2023