Here’s how the debt snowball method works:

List Your Debts: Start by making a list of all your debts, including the outstanding balance, interest rate, and minimum monthly payment for each one. Arrange them from smallest to largest based on the outstanding balance.

Pay Minimums on All Debts: Continue to make the minimum monthly payments on all your debts to avoid late fees and negative credit consequences.

Attack the Smallest Debt: Allocate any extra money you can afford to the smallest debt on your list. This might be the debt with the lowest balance. The key here is to focus on one debt at a time while paying just the minimum on the others.

Achieve Quick Wins: By concentrating your efforts on the smallest debt, you can pay it off relatively quickly. This provides a sense of accomplishment and motivation to keep going.

Roll Over Payments: Once the smallest debt is paid off, take the entire amount you were paying on it (both the minimum payment and the extra amount you were putting toward it) and apply it to the next smallest debt on your list. This “snowball” effect leads to progressively larger payments being applied to each subsequent debt.

Repeat Until Debt-Free: Keep repeating this process until you’ve paid off all your debts. As you tackle larger debts, it may take more time, but the momentum you’ve built up by paying off smaller debts will help you stay motivated.

The debt snowball method is known for its psychological benefits because it gives you a sense of accomplishment early in the process and helps you stay motivated as you work toward larger debts. However, from a purely financial perspective, the debt avalanche method may be more cost-effective because it focuses on paying off the highest-interest debt first. The choice between the debt snowball and debt avalanche methods depends on your personal financial goals and psychological preferences.