If you’ve borrowed student loans to pay for your college education and you’re ready to start paying them back, the good news is that you have a lot of different options when it comes to choosing a repayment strategy. Which of these is right for you will depend on your personal goals. If you want (or need) to free up some money in your budget as quickly as possible, or you otherwise just want a quick win that comes from paying off a loan, then the debt snowball method could be the right choice for you.
Here, we take a look at the debt snowball repayment strategy, walk through the steps to use it for paying back your student loans, and compare it against other popular methods so that you’ll be better able to decide whether or not it’s the right move for you.
What is the debt snowball?
The debt snowball is a debt repayment strategy where a borrower focuses their efforts on paying off the student loan with the lowest balance first. Once this loan is paid off, the borrower then applies all of the money they were paying toward the first loan and applies it to the loan with the next lowest balance. They continue this process until all of the loans have been paid off.
Because the debt snowball focuses on the loan with the lowest balance first, the borrower can rest assured that they will pay off one of their loans as quickly as possible. This has the effect of freeing up money that can be used for other needs or, ideally, be applied to their other debt.
How to Use the Debt Snowball to Repay Your Student Loans
1. Keep track of your student loans in a spreadsheet.
In order to figure out which loan you’ll prioritize paying back, you will need to have all of your loans in a single spreadsheet. This spreadsheet should include all of your student loans (private and federal), and as much detail as possible. At a minimum, you’ll need the loan name and balance amount. Use this free spreadsheet to keep track of your student loans.
Need help keeping track of your student loans? Download our free Student Loan Spreadsheet!
2. Organize your student loans from lowest balance to highest.
Next, you will order your loans so that the loan with the lowest balance is at the top of your spreadsheet, while the loan with the highest balance is at the bottom. You will essentially ignore the interest rate.
3. Make the minimum monthly payment on all of your student loans.
Because you can’t simply stop making payments on your loans to focus on one of them, you’ll need to continue making the minimum monthly payment on all of your student loans.
4. Make extra payments on the loan with the lowest balance.
When you have extra funds that you want to use to pay down your student loans, you’ll apply it specifically to the loan with the lowest balance. As you continue to make payments, you’ll notice that this loan’s balance will decrease more and more with each payment; that’s because the lower the balance, the less interest can accrue between payments.
5. Once you have paid off your first loan, shift your focus onto the loan with the next lowest balance.
You will eventually pay off the first loan. How long it takes will depend on what the balance is and how much extra money you are able to dedicate to it each month.
Once you’ve succeeded in paying off the loan with the lowest balance, you’ll take all of the money you were using to pay it down and apply it to the loan with the next lowest balance. That means that you’ll be paying the minimum monthly payment amount from Loan #2, plus everything you were paying toward Loan #1 each month. The effect of this is that you should find you pay down the second loan even faster than the first.
6. Continue tackling your loans until you have paid them all off.
After you’ve paid off the second loan, you’ll just keep following the plan by moving on to the loan with the next lowest balance, and the next, and the next, until you’re all done with all of your loans. By the end of the process, you’ll be making huge payments, which should dramatically accelerate your repayment schedule for the final loan.
Pros and Cons of Debt Snowball for Student Loans
Using the debt snowball to repay your student loans comes with two big benefits.
First, because you are tackling the loan with the lowest balance first, you know for certain that you will pay off a loan as quickly as possible. If you need to rapidly free up some money in your budget for other expenses or simply to make life a bit easier, this is definitely the way to do it.
Second, if you have a number of student loans, it’s easy to feel overwhelmed or like you’ll never be debt free. Focusing on paying off the loan with the lowest balance will let you notch yourself a quick win in the fastest way possible, which can be a huge mental boost. That is exactly why I followed this strategy myself when paying back my own student loans.
Of course, there are some tradeoffs as well. In order to save as much money in the form of interest charges, you would want to focus your efforts on the loan with the highest interest rate, as you would do in the debt avalanche method. Because the snowball method ranks your loans by their balance, there is no guarantee that the loan with the lowest balance will have the highest interest rate. This means that the debt snowball might save you less money over the life of your loan compared to the debt avalanche.
Of course, it’s also possible that your loan with the lowest balance will also be the loan with the highest interest rate. If that’s the case, then you can enjoy the best of both worlds!
Is the debt snowball the right strategy for you?
While the debt snowball was the perfect repayment strategy for me, personally, there’s no way for me to tell you whether it’s the right one for you. Only you can make that decision, based on what you personally want to get out of repayment.
If you want to free up money in your budget as soon as possible, or simply want a quick win, then the debt snowball could be perfect for you. If, on the other hand, you want to save as much money as possible during repayment, then a different strategy, like the debt avalanche, might be a better choice.