Debt Snowball

Personal Finance

The debt snowball method clears multiple loans by paying off the smallest balance first (regardless of interest rate), then rolling that freed-up payment to the next smallest. Provides psychological wins to build momentum.

In detail

Two main debt repayment strategies:nDebt Snowball (smallest balance first): psychological motivation, quick wins, mathematically costs slightly more total interestnDebt Avalanche (highest interest rate first): mathematically optimal, saves maximum total interestnnIn practice: use Avalanche if you are disciplined. Use Snowball if you need motivation -- the sense of accomplishment from clearing a small loan completely keeps you going.

Formula

Snowball: List all debts smallest to largest balancenPay minimums on all; attack smallest with all extra cashnWhen cleared: roll its payment to next smallest

Real-life example

🇮🇳 India example

Ajay: Credit card Rs 25K (minimum Rs 1,000), personal loan Rs 80K (EMI Rs 3,000), car loan Rs 2L (EMI Rs 5,000). Snowball: attacks credit card first with extra Rs 4,000/month. Clears in 5 months. Then adds Rs 5,000 to personal loan -- clears in 10 months. Then Rs 9,000 extra on car loan -- clears 8 months early.

Frequently asked questions

Debt Snowball or Avalanche -- which is better? ▼

Mathematically, Avalanche (highest interest first) saves more money. Psychologically, Snowball (smallest balance first) keeps more people on track. The best strategy is the one you actually stick with.