What Is the Debt Snowball Plan?

Debt snowball method, so what is it all about anyway? It’s a plan designed to help you stay motivated to pay off your debt by starting with the smallest one and working your way up.

Myth: You need to pay off the debt with the highest interest rate first to get out of debt quickly.
Truth: You should knock out the smallest debt first to create momentum in your debt snowball.

Mathematically, it makes sense to pay on the debt with the highest interest rate first. After all, doesn’t that save you the most money?

Maybe, but it’s more important to pay your debts in a way that keeps you motivated to keep going until you’ve wiped them all out. If you begin with the biggest one, you might think you’re not making fast enough progress, lose steam, and not finish the job.

It’s better to get quick wins that pump you up. Those wins happen when you start with the smallest debt. List all your debts (except the house) smallest to largest. Now it’s time to get rid of them ASAP with the debt snowball.

How the Debt Snowball Works

Make minimum payments on all the debts except the smallest, and throw as much money as you can on it. Once that debt is gone, take its payment and apply it to the next smallest debt. Repeat that as you plough your way through them. The more you pay off, the more your freed-up money grows—like a snowball rolling downhill.

It looks something like this:

Step 1: List your debts from smallest to largest.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.

Here’s a quick example. Say your debt snowball looks like this:

  • Credit card 1: R500 at 13% with a monthly payment of R25.
  • Credit card 2: R1, 000 at 19% with a monthly payment of R50.
  • Car loan: R6, 000 at 4% over four years with a monthly payment of R135.
  • Student loan: R15, 000 at 5% over 10 years with a monthly payment of R159.

If you pay the minimums on everything and add an extra R100 to the smallest credit card payment, you’ll pay it off in five months. Then you can attack the second credit card to the tune of R175 per month (R100 plus the newly-freed-up R25, plus the R50 payment you’re already making). That one will also be gone in five months. Now you have R310 a month (R175 plus R135) to put toward the car! At that rate, the auto loan will hit the road in 15 months!

By the time you get to the student loan, you’ll be paying R469 on it each month! You’ll wave bye-bye to it in a couple of years and be totally out of debt.

That’s what happens when you have focused intensity and start with your smallest debt—it leads to a big result!

Why Does the Debt Snowball Method Work?

The debt snowball works because it is about behaviour modification, not math.

In our example, if you start paying on the student loan first because it’s the largest debt, you won’t see it leave for a while. You’ll see numbers going down on a page, but pretty soon you’ll lose steam and stop paying extra. And you’ll still have all your debts hanging around.

But when you ditch the small debt first, you see progress. That one debt is out of your life forever. Soon the second debt will follow, then the next. When you see the plan working, you stick to it. And when you stick to it, you will succeed in becoming debt-free!

The only time you might make an exception to the debt order is if one of the debts is to SARS. You do not want them in your life, so it would make sense to move a tax bill up in priority. Once it’s gone, proceed with the debt snowball like normal.

By the time you are paying the bigger debts, you have so much more cash freed up from paying off the earlier ones that it creates a “debt snowball” effect. Suddenly you’re putting hundreds of Rand’s a month toward your debts instead of a few bucks here and there. You build momentum, which changes your behaviour and helps you get out of debt—for good.


Anybody seeking debt advice can contact OUDS on 079 980 0822, for free assistance, help, or more information or visit our website.

So you truly can leave your debt worries in the past and start your new beginning!