3 Reasons Why Research Says the Debt Snowball Works

Debt is a generosity killer.

When it comes to paying off debt, you’ve probably heard about the Debt Snowball. The payoff method first started receiving attention with Larry Burkett and has since been popularized by Dave Ramsey and others.

Here’s how it works—The Debt Snowball is a debt payoff plan where a person targets their debts according to their balances, from the smallest balance to the largest balance. Minimum payments for all debts are maintained while any additional money is put toward the one targeted debt. Once a debt is eliminated, the amount you were paying for that debt is then rolled into the next smallest debt. Here’s a quick example:

A person has three debts—a $4,000 credit card balance with a 19% interest rate, a $200 credit card with an 11% interest rate, and a $3,000 car loan with an 8% interest rate.

According to the Debt Snowball method, here is the order in which you target the debts:

1. $200 credit card with an 11% interest rate

2. $3,000 car loan with an 8% interest rate

3. $4,000 credit card balance with a 19% interest rate

Now, you may be thinking, “But the $4,000 credit card balance has the highest rate. Wouldn’t it make financial sense to knock that one out first?”

Ordering your debts according to their interest rates, moving from highest to lowest, is called the Debt Avalanche. And there are some merits to it. Because you pay off the higher rates first, you end up paying less money overall, all else being the same.

So, why do I encourage people to use the Debt Snowball? Why have I written and talked about the method numerous times? The reason is simple—for most people, the Debt Snowball is the best debt payoff plan out there.

But it is not just my opinion. Harvard Business Review published an article titled, “Research: The Best Strategy for Paying Off Credit Card Debt.” In it, they study the Debt Snowball. Their results lead them to believe that the Debt Snowball was the best payoff plan. Let me summarize their findings into three points.

1. A plan brings clarity. Those with significant debt often find themselves unable to determine what step was needed first. The overwhelming amount of debt leaves the debtor paralyzed. The Debt Snowball helps answer the question, “What do I do now?” It provides a guide. And that, in and of itself, is powerful.

2. Focusing on individual debts increases motivation and effort. One of the beauties of the Debt Snowball is that the strategy requires that you focus on individual debts. This allows you to easily see the decreasing balance of the targeted debt, which, in turn, increases a person’s motivation.

3. Small wins work. The Debt Snowball allows for a series of small wins. And because the strategy targets the smallest balance first, the first win usually comes quickly. The series of wins encourages those who are paying off their debt to keep going, knowing that another victory is right around the corner.

So, if you have debt and desire to see that burden eliminated, consider the Debt Snowball strategy. It is popular for a reason—it works. And now, there is research to back up its effectiveness.

Crush the generosity killer. Get rid of debt so that you can live and give more generously.

And if you want to read more about the research, check out this article.