The Debt Snowball Method and Savings

With respect to paying off credit card debt, one school of thought is that credit cards with higher interest rates should be paid off first while the other school of thought suggests paying off those with the lowest balances first – sometimes referred to as the snowball method – is the way to go.

From a purely financial perspective, the former is the better approach. However, there is value in the latter approach as there is a psychological lift – a real sense of progress – from paying off one card and then committing the money that was being paid on the first to the next card in line, continuing this progression until the last card is paid off. This was the approach the wife and I employed when eliminating our credit card debt and it worked well for us.

Dave Ramsey, perhaps the best known advocate for this method, describes the process as such: Pay minimum payments on all of the debts except the smallest one then attack that debt with a vengeance. We’re talking gazelle intense, sell-out, get-this-thing-out-of-my-life-forever energy. Once it’s gone, take the money you were putting toward that debt, plus any extra money you find, and attack the next debt on the list. Once it’s gone, take that combined payment and go to the next debt. Knock them out one by one.

Snowball Cookies

Celebrate Being Debt Free With Some Snowball Cookies

Whichever method you use, the key is to stop using the credit cards and stay committed to reducing the balances to zero while you start working your savings and investment plan.

That last point brings us to another case of differing schools of thought. One philosophy suggests that credit card debt should be paid off completely prior to committing money to investing. My belief is that while credit card debt should be under control and be on a steady decline, it does not necessarily need to be paid off completely before you develop a savings and investment plan and begin committing money to your retirement accounts.

My rationale is that the sooner you establish your savings and investment accounts, get in the habit of funding them, and get in the habit of managing them the better off you will be; the sooner you can make your money start working for you through the power of compound interest.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. I agree with you 100% regarding emotion and psychology. I view it like this: many people who accumulate debt do so because they can’t curb their need for instant gratification. When they decide to get their finances in order, an early win (snowball method) also feeds that need for instant gratification. But in the case of paying down debt, that need is directed towards something positive.

    Great post, James

    • Great observation with respect to debt. I was thinking of something along the same lines when I was writing my response to Stefan. Sometimes there’s more than cold, hard facts at play.

      Thanks for sharing your thoughts, my friend.

  2. Sometimes people need momentum to help break their bad behaviors and the snowball methods is just what they need regardless of interest rates. The call it PERSONAL financial for a reason. All about what fright for your situation.

    • Yep. I believe one of the most important things about managing your finances is to learn as much as possible, self-education, about the various factors, practices, philosophies that can be applied to personal finance and then do just that, apply them to your unique situation, personality, etc.

      Thanks for joining the conversation, my friend.

  3. I like the snowball over all other methods. The little wins build confidence to keep going. Looking forward to complete debt freedom in the year 2046, just took out a mortgage. Whoohoo.

    • It’s the little wins that can put the wind at your back. Indeed. Congratulations on the new home purchase. No car loans or credit card debt for us and we refinanced our mortgage – swapped the 30 year for a 15 – a couple of years ago and plan to have it paid off in 2024.

      Thanks for stopping by, my friend.

  4. For most people the difference in interest payments between the two methods will not be that great – Debt Payoff Calculator – But I believe for most people the psychological benefit of paying off one debt completely is worth considering the ‘snowball’ method.

    • Indeed. It may not work for everyone, but it certainly is one method that can be considered when someone is ready to tackle debt.

  5. Interesting post as always James. I think the snowball method may be better for people trying to get into the habit of paying down debt, depositing money into their retirement accounts, setting aside investing money etc. It definitely is motivational to pay down debt, no matter how small it may be.
    I would argue though that from a pure financial planning perspective, paying down high debt is always a must. It doesn’t matter if you are putting money into retirement or investing it at 5-7% a year if the debt is accumulating at a rate of 20%+. These high percentages, usually from credit cards, can severely damage one’s finances if left unattended for too long.

    • Agreed that from a purely math/financial perspective, the debt with the highest interest rate should be paid first. However – I suspect you knew that was coming 😀 – my experience has been it isn’t always about the basic math. In a number of ways, emotion and psychology are more important.

      Thanks for stopping by, my friend. I appreciate you taking the time to share your thoughts.

      • I knew that however was coming haha. I have to fully agree with what you said. The biggest battle to being financially successful (from a management perspective) is emotion and psychological (aside form goals). I love when people challenge the norm. Nobody got successful doing things the same way right?

        • Indeed. At the end of the day ‘personal finance’ is personal. People have to put in the work to educate themselves and then apply that new found knowledge to their unique situation.

          Thanks for adding your voice to the conversation, my friend.

  6. I never liked the snowball method. Sometimes you end up worrying about a 3% interest $4000 loan which is like ow, my pinky finger kind of hurts vs $6000 22% apr credit card loan which is like being repeatedly kicked in the balls and you’re going to worry about the pain in your pinky first? if the two debt apr’s is reasonably close, fine, it doesn’t matter much anyway.
    But I guess most people don’t think about money in those contexts, so maybe thinking about just the principle is easier for those people to grasp, idk, and maybe the psychological win really helps to continue getting rid of debt. It sounds like the snowball method has helped many who struggled with the standard method, but I’d really struggle to recommend it to any family or friends.
    I just don’t want to hear people say blatant lies like “Snowball method is the fastest way to get rid of debt!”.

    Since most credit card debt is high apr, I’d probably want people to get rid of that debt before saving. I guess I’d agree with you that it’s still smart to put a little bit away in savings, but put a lot in paying off that cc debt. but if your debt is lower apr or you transfered to a 0% for a year credit card than I’d have a more aggressive saving tactic.

    • No doubt that strictly from a math perspective, it makes sense to pay off credit cards with higher interest rates first, and unless the rate of return on an investment exceeds the interest rate being paid on debt, it makes sense to get rid of the debt before saving/investing. You will get no argument from me. If someone has three cards, #1 ($15,000, 20% APR), #2 ($2,000, 2% APR) and #3 ($2,500, 3% APR) they really need to take a hard look at paying #1 first, psychological lift be damned! With respect to paying debt and saving concurrently, if someone’s debt is so onerous that they are barely getting by and they truly don’t have anything left after satisfying the debt payments each month, then indeed, saving should be the furthest thing from their mind.

      Two things, however. First, with respect to tackling debt, I believe it’s highly unlikely an individual is going to have two or more credit cards with such a huge spread on the rates they are paying. It is much more likely that if someone has multiple credit cards the rates are going to be within a few points of each other, making which gets paid first pretty much a moot point. That was certainly the case for me and I have to imagine that is the case for most others.

      Second, as I noted in Paying Down Debt When Income Remains the Same, my experience has been that is not the case for most people. Most people simply manage their money poorly and would have more disposable income if they tracked and managed it better. I don’t believe it’s that difficult to imagine an individual (household) ‘finding’ an extra $100 each month with some effort. When that is done, applying $75 of the found money to debt and $25 to savings strikes me as the way to go.

      As always, thanks for stopping by, my friend and adding thoughtful commentary.

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