Free Debt Snowball Calculator
Based on the Dave Ramsey Debt Payoff Method

Last Updated: January 04, 2020
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The Debt Snowball Payoff Method

Paying off debt is one of the largest behavior changes that can contribute to reaching financial independence. When your income is not going directly out in the form of payments every month, you can apply this money towards investments, savings, and reaching the financial goals you are working towards. This debt payoff calculator will be a useful tool in helping you become completely debt free.

It is easy to stumble into debt, but not so easy to stumble out. If you are like most people, debt is a large portion of your financial world. In 2016 the average household debt was $134,643. Of that, $16,748 was in the form of credit cards.

With that large of a number, where do you even start?

Enter the Debt Snowball method.

How Does the Debt Snowball Method Work?

Think about the last time you made a snow man. The process is pretty simple. Ball up some fresh snow in your hands, then grab more snow and repeat. Eventually the snowball gets large enough you have to roll it across the ground to make it any bigger. Doing this causes the ball to pick up more snow as it rolls, growing into the body of a plump snowman.

The Debt Snowball method works the same way.

Take an inventory of every debt you have. This most likely comes in the form of a car payment, student loans, credit cards, and any other money you have borrowed. These can sometimes be easy to overlook because we get in the routine of making payments every month and lose touch with what we are actually paying for.

List your debts from smallest to largest. It is important to continue making the minimum payments on all of your debts, except the one you are going to tackle first. Any extra money you have after paying the minimum payments on the others gets thrown at your smallest debt. This allows you to exceed the minimum significantly on this first debt.

Once your first loan is paid off, you then have freed up all the money you were applying toward this first debt. Now you have all of these funds to apply toward the second debt in the list.

As you pay off each debt, your “snowball” grows larger and larger. By the time you reach the largest debt, you have freed up all the money you were applying towards the smaller amounts. The momentum is built very quickly and the moral victories of paying off these small loans will motivate you to continue.

Why the Smallest Debt First?

For some, the thought of going right after the largest payment is extremely intimidating. Chipping away at a $70,000 debt can seem impossible.

The alternative to paying the highest interest rate is to go after the smallest debt first. This method makes paying off the debt easier on you mentally.

Let's say you pay off that lingering medical bill of $300 within two weeks of starting your snowball.

That felt good!

You would then be motivated to go right after the second debt. When you complete this two and three times, you are on a fast track to debt freedom. It may even motivate you to reallocate some of your spending money to throw at the debt because you are making such great progress with it.

How Does This Compare to the Debt Avalanche Method?

If you are an analytical thinker, you can see that financially it makes sense to pay off the debt that is charging you the highest interest rate. The avalanche method follows this idea.

Rather than listing your debts smallest to largest, you organize them by interest rate. The highest interest rate is paid off first, regardless of payment size.

For most people this would be your credit card. Some credit cards are charging in excess of 19%. Based off the average household’s $16,748 in credit card debt, this number can reach well into the thousands.

By eliminating this high interest rate, you are keeping more dollars in your pocket over time. This method will not give you the same short term wins that the Debt Snowball method will, but if you are disciplined this may the best method for you. Using a debt calculator will help you stay organized while using the Avalanche method as well.

Which Method is Right?

Deciding between going after the highest interest or smallest debt first is personal decision.

If you have the discipline to pay off larger debts first (assuming the larger debt has higher interest), you will pay less money in the long run. If you know yourself to be less disciplined, having the moral victories of paying off the smallest debts first could be the way to go.

It may take some time to learn which type of person you are. If this is the case, do not stress. Use a debt reduction calculator like this during either payoff method and find out which way works best for you.

Staying on Track

In the end, the method you choose to tackle your debt is less important than actually paying toward it. This is the simplest way to become debt free and gain control of your finances.

This Debt Snowball Calculator is a great way to gain an understanding of where you are in this process. It allows you to lay out your debts and shows you in detail how quickly your "snowball" can work for you.