The CFPB describes the snowball as paying off the smallest debt first while making minimum payments on the rest; once the smallest is gone, its payment moves to the next smallest. Ordering by balance rather than by APR means the first debts disappear quickly, which many borrowers find motivating. The CFPB notes the trade-off: the borrower may end up paying more in the long run, because larger and costlier debts get less attention. The debt avalanche orders by interest rate instead.
Formula
There is no closed formula; the plan is simulated month by month:
interest = balance × APR ÷ 12
extra budget = fixed monthly budget − all minimums
Each month the extra budget goes to the open debt with the smallest balance.
Example
Three debts totaling $10,500 (a $1,000 store card at 15%, a $6,000 card at 24% and a $3,500 loan at 11%) with $200 extra a month on top of the $275 minimums: the snowball clears them in 29 months and pays $2,879.83 of interest. The avalanche on the same debts finishes in 27 months with $2,262.55 of interest. The full comparison is in the snowball vs avalanche guide, and the debt snowball calculator runs your own debts.
Common mistakes
- Cutting the monthly budget when a debt is paid off instead of rolling its payment to the next debt.
- Ignoring a very high-rate balance because it is not the smallest.