Debt Snowball: How to Stay Motivated While Paying Off Debt

Hey Debbie,

I have a bunch of debt from various sources (like student loans, personal loans, car loans, etc.). I'm having a hard time staying motivated and really don't know where to start when paying them down. Any advice?

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Here's a question we get quite often:

"I have a bunch of different debt(like student loans, personal loans, car loans, etc.). Which debt do I start with and how do I stay motivated to pay it off?

It can be really overwhelming when you see the bills pile up... It might feel like your contributions don't even put a dent into the debt you have. Thankfully, the Debt Snowball Method is a strategy that helps you stay motivated by making your debt payback feel WAY more significant.

The Premise

Let's say you only have 3 sources of debt: student loans, personal loans, and car loans. It would look something like this:

Student Loans: $10,000, minimum monthly contribution: $100

Personal Loans: $8,000, minimum monthly contribution: $80

Car Loans: $2,000, minimum monthly contribution: $20

Let's also assume that this month, you have $200 leftover after putting some away into savings and buying your daily necessities.

The Instructions

List all of your debts in order, smallest to largest. For every payment you make, you can assign it to a specific debt. Each month, you will make the minimum payment towards each of your debts, except the smallest one, to which you will contribute as much as possible. When you pay off one of your debts, the money that would have gone towards that debt goes into the next smallest on the list.

In the case of your debts, you would contribute the following:

Student Loans: $100

Personal Loans: $80

Car Loans: $20 + $200 from leftover cash

Once you've paid off the car loan debt, your contributions would look something like this:

Student Loans: $100

Personal Loans: $80 + $20 (from car loan that's gone) + $200 from leftover cash

The fact that the rate at which you pay debt appears to accelerate is why the method is called the Debt Snowball. Once the snowball gets rolling, there's no stopping your debt payback!

Quick Note on Interest Rates

Now, we know what you must be thinking - the Snowball method doesn't account for interest rates (i.e. what if my personal loans have a higher interest rate than the car loan???). Mathematically, it's definitely best to pay down your highest-interest debt first. However, the Snowball method works better for motivating you because it feels better; the reward of seeing the rate at which you pay back your debt increase over time gives you a sense of progress. If you know that staying motivated is an issue, the Debt Snowball is a good strategy to keep you on track for your financial goals.

Of course, if you have some REALLY high-interest debt, such as credit card debt, do make sure to pay those first. Debt of this nature can burn a hole in your wallet, so prioritize high-interest debt above other debts.

Alternative Strategies

Debt Avalanche: Of course, if you have some REALLY high-interest debt, such as credit card debt, do make sure to pay those first. Debt of this nature can burn a hole in your wallet, so it may make sense to prioritize high-interest debt above other debts.

Debt Tsunami: Paying off debt based on highest emotional burden

Debt Consolidation: Rolling debts into one loan.

Taking on any of these strategies is a step forward in your debt freedom journey... But we’ll save the others for another time!

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