The Snowflake Versus The Snowball Method Of Paying Off Debt.
With old man winter hitting most of the country hard right now. The heavy snowfall and bitter temperatures plaguing the country now is a great time to talk about the avalanche of debt that you probably need to pay off. There are many debt payoff methods being advertised on television and radio shows. While we are still talking about snow and bad weather we will look at the debt snowflake and the debt snowball method of paying off debt.
Snowflake Method
With the debt snowflake method, we use this method to pay off a large amount of debt like mortgages, IRS debt, or any other single debt with a large balance. The whole idea is to aim at reducing the balance on the debt with any money left over from outside sources. This could be a side gig, from an inheritance or from lottery winnings, just any extra money that you comes your way.
These small payments towards the balance are called snowflake payments. These payments are aimed at chipping away at the balance with consistent small payments in order to become debt-free. For many, including myself, it is easier to make small payments on the balance more frequently than making a large payment monthly.
Just like snowflakes in a snowstorm, after many snowflakes have fallen the amount of snow accumulates quickly. The same goes for making small payments towards the balance of a large loan. These small payments add up fast and the balance dwindles quickly.
Having small wins and seeing the balance dwindle has a psychological effect on people. This effect helps to boost you to take action on more of your debt and eliminate your debt balance faster.
Snowball Method
I personally love the debt snowball method. First, you take all your debt and list them on a balance sheet from the lowest debt to the largest debt.
Start paying off the smallest debt first, even if the interest is higher than the others. Take any extra money you have on hand to pay off these debts. Take what you money you make from garage sales, or funds in your savings account, or money from a side gig to use to pay these debts off.
Second, pay only the interest portion on the other debts and concentrate on paying off the smallest debt first. Once that account is paid off totally then you will roll over the money you were using to pay on the other account that you just finished and put this on your second account on your list. Continue this snowball method until all your debt is paid off.
People like the snowball method because you get immediate wins from the beginning of your debt repayment process. With paying off small debt in the beginning you will see your reward quickly and you will see money left over at the end of the month faster. When you see this happening right before your eyes the psychological effect will give you the momentum to tackle larger debt and stick to the program
Both the snowflake and snowball debt repayment methods work by scheduling frequent payments towards the principal balance of the debt you are paying off.
Conclusion
One word of caution,Banks or debt holders may have a limit on how many times you can make payments monthly on an account. Plus on some debt, you cannot repay the debt off early unless you pay a penalty or transaction fees.
One method around this is to keep track of what you have saved to pay on your debt. Only make one additional payment each month, this will help to avoid transaction fees from accumulating.
It does not matter how you save your money, just do it. Make sure you keep track of what you are saving each month. This is a great motivating factor. As your debt dwindles away and your spare cash keeps adding up. Nothing can be more satisfying than being debt free.
