How to Use the Snowball Method to Pay off $20,000 in Debt

Key Takeaways



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Snowball Method

Debt repayment strategy that involves focusing on paying off smaller debts first

Interest rate

Proportion of debt that is charged as interest to the borrower


Though paying off debt is a long and arduous process, it's well worth it in the end. The snowball method can help you pay off your debts faster, by putting extra money toward your smallest balance first. Here's how it works:


Step 1: List your debts.

You can use the Snowball Method to pay off any kind of debt, but it works best for small debts that carry high interest rates. You'll want to list all your debts from smallest (highest interest rate) to largest (lowest balance) in order of interest rate, then balance, and finally minimum payment.

  • List all your debts on a spreadsheet or in a text document. Include the amount you owe, the interest rate and minimum payment for each debt. Order them by highest interest rate first—this is where most of your money will go and get rid of these first! Then sort by balance next—the more debt you have, the faster this step will take. Finally sort by minimum payment last so you can focus on paying off bigger amounts faster with less money


Step 2: Estimate the minimum payment you'll need to make on each debt.

Now you have a list of your debts, the interest rate for each one, and the minimum payment amount. It's time to put them together and see what your total debt is.

  • Add up all of your debts. This will give you a grand total of how much money you owe on all of these accounts combined—not just the balances but also any late fees or over-the-limit charges that were assessed.
  • To figure out how much each debt is costing you per month in interest payments alone (and not including any other fees), divide that account's monthly interest rate by 12 to get its annual percentage (APR). Then multiply this number by 0.01; whichever number results is how many dollars per year are being paid toward interest on that account alone. For example: If an account has a monthly interest rate of 5%, its annual percentage rate (APR) would be 25%. If it costs $25 per month in interest payments alone ($25 x 4 = 100), then 100/100 = 1; so there's 1 cent per dollar owed going towards paying off only the interest each month ($100 divided by 25 = 4 cents).


Step 3: List the interest rate, minimum payment, and balance of your first debt.

  • List the interest rate, minimum payment, and balance of your first debt. First, get out your list of debts and find the one with the highest interest rate. This is typically going to be a credit card or student loan debt (which also tend to have higher minimum payments). Write down that information in a column on a spreadsheet like this:
  • Interest Rate: 10%
  • Minimum Payment: $300 per month
  • Balance: $10,000


Step 4: Make a snowball payment plan to pay off your first debt as quickly as possible.

  • Make sure you have enough money to make the minimum payment on your debt. If not, consider cutting back on expenses and/or adding more income streams to reach this target.
  • Set aside money for the minimum payment before you pay yourself . This will help avoid the temptation of spending all of your savings on something else.
  • Pay the minimum payments on all debts except for your first one . Chances are high that you're going to want to use some of that extra money for other things as well—and that's ok! Just make sure that any new purchases don't start a cycle where they're affecting how much debt is paid off every month, or preventing a snowball from forming.
  • Pay more than the minimum payment on your first debt . The faster we can get rid of our smallest debts and keep them gone forever, the better! So if there's any way at all that you can afford it, try increasing what goes toward paying down this loan by using some extra cash each month (or even just little bits here and there).


Step 5: Set up an automatic savings plan to keep track of how much money you're putting toward your debts.

Now that you’ve done the hard work of figuring out how much money to put in your savings account, it’s time to set up an automatic savings plan. This way, you don’t have to worry about remembering to transfer money each month—it will happen automatically on its own!

There are two ways that you can do this: by using a separate savings account or by using a free automatic savings app like Mooch. If possible, I recommend using both methods because they each have their own strengths and weaknesses. This will help ensure that no matter what happens with either method, your debt payments will still get paid on time every month.


Step 6: Track your progress and set realistic goals for when you want to be debt-free.

Now that you’ve made the decision to pay off your debt, it’s time to decide exactly how long it will take. The snowball method doesn’t require you to pay off your debt all at once and in fact, most people will not be able to do so. Instead of aiming for a single payoff date, set smaller goals along the way—these are called milestones—that will help motivate you each month when making payments.

For example: If your goal is $20,000 but there is no way in hell that you are going to have a spare $20K lying around tomorrow (or even next week) then set smaller goals such as paying off one credit card or car loan per month until everything is gone. As each product gets paid off move on up the list and repeat until every single bit of debt has been eliminated from your life!


Once you know what you're working with and how fast you can pay off each bill, it'll be easier to make a plan that works for you!

Now, let's talk about how much you'll be able to pay. Some people choose to pay all their bills by the same amount each month, but there are many other methods of payment. The snowball method involves paying off the smallest debt first and saving money for later on in your payments. This can help keep you motivated as well!

It’s also important to know how much you can save each month. It might seem like a lot at first, but once you start saving money and working toward your goal, it will feel like second nature!

Once you have an idea of what your budget will look like with these two things in mind—how much is owed per bill per month and how much money will be available for savings each month—it will be easier for us to make a plan that works with those numbers, so let's get started!



We're excited to see you making progress toward getting out of debt! As you can probably tell by now, the snowball method is an excellent way to get started with your plan. It's easy to use and even more effective when paired with other strategies like tracking your expenses or automating payments. If you're looking to automate your budget and savings goals try our free budgeting app Mooch. With just a little bit of time and dedication, we know that you'll be able to pay off those pesky bills in no time flat!


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