What is Debt Snowball Method?

The debt snowball method is a debt-repayment strategy in which the borrower pays minimums on every debt and channels all extra funds to the smallest balance first, then rolls each freed payment into the next-smallest balance.

Popularised by Dave Ramsey, the snowball is psychologically powerful: quick wins build momentum and habit. Behaviourally, it consistently outperforms the mathematically optimal avalanche method because more people stick with it.

The trade-off is interest cost: paying smallest-balance-first can leave high-rate debt running longer than the avalanche method. The right choice depends on the borrower's discipline and motivation profile.

Example

A household has CHF 2k at 12%, CHF 8k at 6% and CHF 15k at 18%; the snowball clears the CHF 2k first regardless of rate, then attacks the CHF 8k, then the CHF 15k.

Related terms

Debt Avalanche Method

The debt avalanche method is a debt-repayment strategy in which the borrower pays minimums on every debt and channels all extra funds to the highest-interest-rate balance first, regardless of size.

Credit Score

A credit score is a numerical rating — typically 300 to 850 in the US — that summarises a borrower's creditworthiness based on credit history, used by lenders to decide loan approval and pricing.

Budget

A budget is a written plan that allocates expected income to spending, saving and debt repayment categories over a defined period, used to control finances and reach goals.

Credit Utilisation

Credit utilisation is the percentage of available credit on revolving accounts (credit cards, lines of credit) that is currently being used — a major component of credit scores, with lower being better.

Frequently asked questions

Is the snowball better than the avalanche?+

Mathematically no — but behaviourally yes for most borrowers.

Should I stop investing while doing this?+

Keep employer-match contributions; pause additional investing if high-rate debt costs more than expected returns.

What about minimum payments?+

Always pay minimums on every debt to avoid late fees and credit damage.