What is the Debt Snowball strategy? How does it works?

Paying off debt is rarely a single decision. It is a sequence of choices that must hold together long enough for real balances to reach zero. The Debt Snowball strategy is designed for that kind of stamina. The idea is simple. You list every unsecured and non-mortgage debt you have, order them from the smallest balance to the largest, keep every account current with its minimum repayment, then attack the smallest balance with everything extra you can commit each month. When that account is cleared, you move all the freed cash to the next smallest balance. The process repeats until the final account is gone.

This approach was popularised in mainstream personal finance because it is easy to understand and easy to execute. It does not require you to calculate effective interest costs across multiple accounts in order to begin. You only need to know two numbers for each debt, the outstanding balance and the minimum monthly payment. That simplicity matters, especially if your main risk is not mathematical inefficiency but decision fatigue. Many people do not fail because the arithmetic is complex. They fail because the plan is hard to follow during an ordinary busy month.

The Debt Snowball strategy differs from the Debt Avalanche, which prioritises the highest interest rate first. Avalanche usually saves more interest when the ordering of balances and rates does not line up. Snowball focuses on behaviour. It gives you a quick win early, which reduces the number of open accounts and creates a visible sense of progress. That psychological lift can be the difference between a plan you follow and a plan you abandon.

To see how Snowball works in practice, take a simple Singapore-dollar scenario. Imagine you can allocate S$1,000 each month toward three debts: a student loan of S$30,000 with a minimum of S$500, a car loan of S$5,000 with a minimum of S$100, and a credit card balance of S$2,000 with a minimum of S$50. You would keep every account current by paying S$650 in minimums, then direct the remaining S$350 to the smallest balance, which is the credit card. With typical assumptions for annual interest rates such as 24 percent on the card, 5 percent on the car loan and 4 percent on the student loan, you would clear the card in about half a year, close the account, and then redirect the full S$400 that you had been sending to the card each month into the car loan. That car loan would then disappear roughly 10 months later. From that point, the entire S$1,000 would flow into the student loan until it is repaid in full, which in this illustration takes a little under four years overall. Total interest paid across all three accounts would be in the low-to-mid S$2,000s given those assumptions. The precise figures for your situation will differ, but the mechanism is the same. The monthly cash you free up grows as you close accounts, which is why it is called a snowball.

The ordering in this example happens to match what an Avalanche would do because the highest rate is also the smallest balance. In situations like that, both methods deliver similar timelines and interest costs. Where Avalanche tends to pull ahead is when your most expensive account is not one of the smallest. If your highest-rate balance is large, Avalanche asks you to keep chipping at it for months before you get to close anything. Snowball asks you to eliminate a small account first so that you can feel progress and simplify your repayment picture early. You can think of Snowball as a design choice that trades a bit of theoretical efficiency for a higher probability that you keep going.

Starting is straightforward. You gather your latest statements, confirm balances and minimums, and write them down in order from smallest to largest. If any account is overdue, bring it current before you begin, since late fees and penalty rates can undermine your effort quickly. Next, decide on a monthly amount you can commit for at least six months without straining the rest of your budget. Many people choose a round number, then protect it by treating it as a fixed bill. Once your monthly number is set, schedule automatic payments for all minimums, then schedule a separate recurring transfer that sends the extra to your smallest balance. Removing manual steps reduces the odds that a busy week derails the plan.

Because you are paying every account’s minimum on time, your credit history should stabilise as utilisation falls and accounts close with a zero balance. That in turn can reduce the cost of any future borrowing. There is also a cash-flow benefit that is not obvious at the start. Every closed account simplifies your month. There are fewer due dates to track and fewer notifications to worry about. That reduction in noise is a real gain. It helps you maintain attention on the end goal.

It is natural to ask about interest savings and whether Snowball costs you more than Avalanche. The honest answer is that it can. The magnitude of the difference depends on your rates and balances. In some households, the gap is small enough that the motivational gain from finishing early accounts more than compensates. In others, especially where a sizeable high-rate balance sits in the middle of the pack, Avalanche will save more. If you want to quantify the tradeoff for your own debts, use a repayment calculator that lets you input balances, rates and minimums, then compare timelines and total interest for both methods. Pick the plan you are most likely to follow through December, through Chinese New Year, through tax season, and through the next work crunch. A good plan you complete beats a perfect plan you pause.

You can increase the power of any Snowball by growing the extra you pay. In the illustration above, adding only S$50 to the monthly extra reduced the timeline by a couple of months and trimmed interest meaningfully. Increasing the extra by S$150 cut the journey by roughly half a year. Small additions matter because they are applied every month and because they sit on top of a payment stream that is already clearing accounts in sequence. If you receive a bonus or a windfall, directing a portion to the current target balance can retire it immediately, which then shifts a larger monthly flow to the next debt. That is the compounding effect you are trying to harness, not in an investment account but in your cash-flow system.

There are some cautions to note. If any of your loans impose prepayment penalties or early settlement fees, read the terms before you accelerate repayments. Instalment plans for secured assets, such as certain vehicle or property loans, may have restrictions that do not apply to credit cards or personal loans. If you are negotiating with a lender on a hardship arrangement, confirm whether extra payments are allowed and whether they shorten the schedule or simply reduce future instalments. If an account is already in collections, you may need to settle on different terms through a formal arrangement before it makes sense to include it in a Snowball.

It is also important to keep a modest buffer so that an unexpected expense does not push you back into revolving debt. The size of that buffer depends on your household. For some, S$1,000 to S$2,000 in a separate savings account is enough to absorb a minor repair or bill. For others with dependants or variable income, two to three months of essential outgoings is a safer target. You do not need a perfect emergency fund before you begin. You do need enough cash on the side so that a single surprise expense does not undo months of progress.

Some borrowers will ask whether a consolidation product is a faster fix. Debt consolidation plans can roll multiple unsecured accounts into one facility with a defined term and a fixed repayment, which can simplify cash flow and lower the blended interest cost if you qualify. Balance transfer offers can create an interest-free window that accelerates principal repayment if you are disciplined with the schedule. These tools can help, but they are not substitutes for a plan. Consolidation without a spending reset can just move the problem to a larger account. If you consider a consolidation loan in Singapore, compare total cost, fees, and prepayment terms, and remember that closing old accounts after consolidation reduces temptation and supports the same behavioural benefit that Snowball aims to deliver.

The Debt Snowball strategy is compatible with a wide range of personal finance systems. If you are using budgeting buckets, treat the Snowball amount as a non-negotiable line item next to rent, utilities and food. If you prefer a savings-first approach, automate your retirement or investment contributions on payday, then let the Snowball absorb the rest of your debt budget. What matters is the repeatability of the payment sequence. The fewer manual interventions you need to make each month, the easier it is to stay the course.

For those who need external support, there are credible non-profit channels that can help you design and hold to a repayment plan. In Singapore, Credit Counselling Singapore provides education and facilitates structured repayment arrangements with banks for borrowers who qualify. Speaking early to a counsellor can prevent a manageable situation from turning into a crisis. If your debts are already in delinquency across multiple accounts, seek assistance before committing to any new facility, since a counsellor can help you weigh the tradeoffs among consolidation, negotiated plans and repayment strategies like Snowball or Avalanche.

There is a final mindset point that often goes unspoken. Closing an account changes more than the number on your statement. It reduces a source of cognitive load. It cuts a monthly decision from your life. Each time you mark an account zero and close it, you free capacity to focus on the next action that moves you forward. That is why the Debt Snowball strategy persists in the real world. It treats debt repayment as a system that rewards momentum and simplicity, not just as an interest-rate optimisation puzzle. If you follow it with consistency, protect it with automation, and support it with a small buffer for surprises, you give yourself a credible path to being debt free.

If you prefer to run the numbers before you choose a path, do that. If you already know that your main barrier is staying motivated, Snowball gives you a structure that turns motivation into a sequence of paid-off accounts. Either way, the plan that survives your normal month is the plan that wins.

If you need professional help, reach out to a qualified non-profit credit counselling organisation. If you are in Singapore, Credit Counselling Singapore is a good starting point.