Choosing the right debt repayment method is key to being successful at paying down your debt. Nowadays pretty much everyone has some sort of debt that they are trying to pay off. We know what we need to do in order to pay it off but if you happen to have multiple forms of debt, what is the best way to tackle them? This is a very important question and one that financial professionals sometimes don’t see eye to eye on. With various debts to pay off, the crucial question to answer becomes which debt should you focus on paying off first?

Some believe you should focus on the one that has the highest interest rate attached to it. Others think you should start with the smallest debt and work your way up from there. And if money is tight, they say you should try and put whatever you can towards your debt until all debts are paid off. All three debt repayment approaches do get the job done, but which is the right one for you? Well each debt repayment method has both pros and cons. Let’s dive in!

Debt Repayment #1: The debt snowball method

Paying off debt for anyone is not fun and it is definitely hard to keep the momentum going when you are staring at a large amount. For this reason, the snowball method of debt repayment is very popular. With each debt you tackle, you are building up confidence. So how does this method work? You basically take your smallest debt and focus on paying that one off first and as quickly as possible. As soon as you are done paying it off, you move onto the next smallest debt and so on. As debts continue to get paid off, you don’t lower how much you are paying, you just transfer the monies to the next debt payment.

For example (depending on what your budget allows), if you were putting $200 towards two debts that are now paid off, you transfer that payment to the next debt. You would not lower your payment. This is where the “snowball” gets its name. With each debt you pay off, you are adding more “snow” to your payment. Eventually, you will have one large payment going towards your final and largest debt.

How to Use the Debt Snowball Method

To get started, you want to make a complete list of all your debt. Here is a list of what you may have on your plate.

  • Credit card debt.
  • Student loans.
  • Personal loans.
  • Car loans.
  • Mortgage.
  • Unpaid medical bills.
  • That stuff debt collectors are calling you about…

Once you have your list of debts, put them into a spreadsheet and sort them by lowest balance to the largest.

  • $700 medical bill ($90 payment)
  • $3,500 credit card debt ($75 payment)
  • $9,000 car loan ($150 payment)
  • $12,000 student loan ($100 payment)

With this method, you would focus on the medical bill while continuing to make the minimum payments on the others. Let’s say you have an extra $200 coming in from a side job you picked up. You are now paying $290 towards that medical bill and it will be paid off in a few months. Now you can take that amount and start tackling the credit card bill. You will now be paying a total of $365 towards that credit card and you keep moving down the line.

Why the snowball method may be the right one for you

The reason the snowball method works is not really about the money (because yes you will still be paying interest) it is about your state of mind. Think about it. If you were to start tackling your largest debt first, in this case your student loan, how long would it take before you started to feel defeated?

With such a large number staring at you, it can make you feel you are not making any progress. Not to mention all those smaller debts still lingering. But if you focus on the smallest debt first, you get a small taste of victory and a boost of confidence. You will stick with your plan because you see it working. By the time you reach that last debt, you will have accumulated a big chunk of cash to put towards it, hence the “snowball” analogy.

Factors to consider

So let’s circle back to the whole interest thing. Yes you are reducing the number of debts but you are not reducing the amount of debt you owe. Since this method focuses on the smallest debt, not necessarily the one with the highest interest rate, you will end up paying more interest in the end. That spells more to pay off and more time to do it.

There are some ways you can try to work out a better solution for your higher interest debt. Refinancing is always an option. You can transfer credit card debt to a lower interest card or if you have decent credit, you may qualify for one of those 24 month interest free cards. The catch with balance transfers is the fee (usually around 3%) but you may very well come out ahead after a few months. Check out a balance transfer calculator like the one at to see if this option will make sense for you.

Another option is a debt consolidation loan. This would mean taking out another loan and using that money to pay off your high-interest debts. Then you would pay off the new loan. So if you could get a new loan at a lower rate, this may work. Keep in mind that these loans can be unsecured, so they are usually tied to some asset. This could be your your home, but can also be your car, retirement account, life insurance policy or other valuable personal possession. Furthermore, unsecured loans may only be used for unsecured debts like credit cards and medical bills.

Debt Repayment Medthod #2: The Debt Avalanche Method

Now we look at the avalanche method. This takes into account the debt that has the highest interest rate. Once you pay that one off, move on to the debt with the next-highest interest rate and so on. Since you are starting off with the debt that is costing you the most, each payment you make is saving you more money.

Why the debt avalanche method may be right for you

If you take the same example we mention above, you would apply your $200 that you have budgeted and put it towards your highest-interest loan: the $3,500 credit card bill. You would still pay the minimum on your other debts. By doing this, you will pay that high interest credit card off in 15 months and then move onto the next high interest debt and so on. The amount of time you end up paying all this off may work out to be close to the snowball method, but you will do so with paying less interest. if you have a lot of high-interest debts, you will definitely gain from using this method.

Factors to consider

If you are just looking at the math, the avalanche method works out to be the better deal. It will save you more money and can potentially get your debt paid off faster. With that being said, if you are not carrying a lot of high interest debt, then this method will not get you out of debt much faster than the snowball. This means the progress you will see will be slow to come which can lead to burnout. I guess you could say it comes down to your mental stamina to stay the course. Only you know yourself the best.

Still on the fence about which method may work best for you? Try combining the methods together. You can do this by tracking your progress with a spreadsheet or try the many debt-tracking tools online. Whichever way works for you to track your progress, seeing your debt diminish will give you the mental boost you need to keep trucking along.

Debt Repayment #3: The snowflake method

With the other two methods we discussed above you are using money you have especially budgeted for debt payoff. With the snowflake method, you put any everyday savings or money that comes your way straight towards your debt. So if you manage to save $10 bucks on your groceries one week, you would put that right towards your debt. It is a small amount, but these small savings add up quickly. Pack your lunch, skip Starbucks, make dinner at home etc. and you can definitely find extra money that can go towards your debt.

Why this method may be for you

If you are staring at a large mountain of debt, the idea of putting a few dollars here and there towards it does not sound exciting. But those small amounts can have a bigger impact than you think.

For example, say you have a credit card balance of $3,500 and with an APR of 15 percent. If your minimum payment is $100, it would take you 47 months to pay off the balance and you would pay $1132 in interest.

If you were to apply the debt snowflake approach, you could help lower the interest and the cut the repayment term. For example, if you can come up with an extra $5 a week from coupon clipping, that $20 would cut your time down to 39 months and your interest would drop to $971. Just that little amount gets you out of debt eight months earlier! Now just think of what any other small amounts of money can do. Bonuses, raises, tax refund, monetary gifts etc. can add up to a nice dent in your debt.

Factors to consider

One of the benefits of the snowflake method is that it works well for all budgets. You don’t have to slash your expenses so you won’t feel the pinch so much. The biggest con for this method is that it is not really steady. Since you are throwing whatever comes along in terms of dollar amount, your progress is not on a fixed path like it is with the other two methods.

The other factor to keep in mind is that some lenders do not allow multiple payments throughout the month. In this case, accumulate what you can throughout the month and make one lump sum payment.

Where to find these “Snowflakes” in your budget

Gathering as many “snowflakes” as you can will soon turn into a “snowball” that will put a nice dent in your debt. There are ways everyday where you can find small amounts you can save as well as ways to make an extra buck. Here are some ideas you can try out straight away.

  • Use a cash-back credit card: This can be a great way to generate some side income. Caveat: needs to be paid off in full at the end of the month.  Otherwise forget it.
  • Check out Swagbucks: Earn money for taking surveys and surfing the web.
  • Check out Paribus: Keep the receipts for any online purchases and Paribus will scan your email for any retailers on their list. They will monitor the prices and if they drop, you will be refunded the difference.
  • Use Coupons: Coupons are EVERYWHERE. There are tons of coupon websites as well as coupon apps to help you save money.
  • Cut out your subscriptions: Small amounts that get charged to our accounts often go unnoticed. This could be your gym membership, subscriptions, apps you have signed up for. If you are not using them, cut them out of your budget.
  • Find free things to do: There are so many free activities to take part in whether you are single or have kids. Check online for events in your area, have a movie night, hit the beach, invite friends over. The possibilities are endless for free entertainment. Just get creative.
  • Get cash back on your groceries: Ibotta is an app that has coupons from participating stores. Purchase products from those retailers and upload your receipt. The app will scan your receipt for the items and if any coupon matches pop up, you will get money back.
  • Become an Uber or Lyft driver: Becoming an Uber or Lyft driver is a super easy way to make extra money. You make your schedule so this is great for anyone needing flexibility.
  • Skip buying coffee and lunch out: This one is probably the easiest way to start throwing money at your debt.

You can combine the snowflake method with other debt repayment methods

If you decide to go with either the debt snowball or the debt avalanche method, the snowflake method can piggyback. As an example, come up with a set dollar amount ($50) that can be put aside for either the debt snowball or the avalanche methods.  Then, as you go through the month, you can tack on “snowflake” payments on top of those other payments.  This will help you make steady progress with paying off your debts along with intermittent “boosts” of snowflake payments.  These snowflake payments act like a special bonus.

Final thoughts

When it comes to tackling debt the most important factor is sticking to the debt repayment plan you decide on. So when choosing, you need to pick the one that you know you can stick to. If you are a numbers based person, the debt avalanche would be for you.

On the other hand, if you are more motivated by short-term victories, then the snowball would be a fit. Whichever method you go with, the snowflake method can be tacked on to help you chip away at your debt that much more. When you are done paying off the debt, take that money and do something smart with it. Put it towards your retirement savings or emergency fund.