If someone asked you to picture your debt, what would you see? Would you picture it as a prison cell, an incredibly steep mountain, or maybe a huge pit?
Regardless of how much debt you have, or how you picture it, one thing is certain. You’re desperate to get rid of it.
So, What could you do?
The two proven methods
Until recently, only two proven ways to pay off debts existed. They were the snowball method and the avalanche method.
The way the avalanche method works is that you make a list of your debts in order from the one with the highest interest rate down to the one with the lowest. You then put all your efforts towards paying off the debt with the highest interest rate. This is because that will save you the most money. Once you have it paid off, you move on to the debt with the next highest interest rate, and so on.
The other way, the snowball method, is where you list your debts from the one with the lowest balance down to the one with the highest. Then, instead of focusing on the debt with the highest interest rate, you put all of your energy towards paying off the debt with the lowest balance. The psychology behind this method is that it should be relatively easy to pay off that first debt, which will give you motivation (as well as extra money) to begin paying off the debt with the second lowest balance and on and on.
The problem with both these methods
Unfortunately, both of these methods share a common problem. They rely on you budgeting money every month to make the minimum payments on all your other debts while throwing extra money at the debt you prioritized
This can be very taxing financially as both require you to come up with large payments every month.
Introducing the snowflake method
An alternative to both the snowball and avalanche methods was recently developed – the snowflake method.
The way it works is that instead of having to worry about coming up with those big payments every month, you just find ways to shave some money off your everyday spending. You then use this money to make small, frequent payments on your credit card debt. You may feel those small amounts are microscopic when compared to your overall debt balances. But over time, those little payments will save you hundreds of dollars and knock months off your repayment term.
Of equal importance, you can use the snowflake method in combination with any other repayment options.
Apply those everyday savings to your debt immediately
At the heart of the snowflake method is applying those everyday savings to your credit card debt immediately. As an example of this, let’s suppose your weekly budget for groceries is $50. However, thanks to coupons you only spend $46 this week. With the debt snowflake approach, you’d take the surplus or the $4, and immediately make a payment on your credit card account. Then, do this every time you save some money. Instead, of spending $60 for a haircut, go to Great Clips for $25. Then, put that extra $35 towards your debt the minute you get home.
Does this really work?
If you visualize your debt as that very steep mountain, the idea of paying an extra $4 or $5 here and there might seem kind of ludicrous. But, believe it or not, those little snowflake payments can end up having a big impact.
Here’s an example. Let’s suppose you have a credit card with a balance of $3000 that has an APR of 15%. Assuming your minimum monthly payment is $100, it would take you 38 months to pay off the debt and would cost you $784 in interest.
If you could save four dollars a week by clipping coupons and apply that extra $16 a month to your credit card debt, you would be able to pay it off in just 32 months, and you’d pages $647 in interest. As you can see, applying those snowflakes, or small savings, each month would get that debt paid off a full six months earlier.
If you’re trying to pay off a mountain of credit card debt, it can be unrealistic to try to find large sums of money to repay your balances. This is why the debt snowflake method can be effective. If you’re diligent about applying those little daily savings to your credit card debt, you’ll both pay off your balances sooner and save a lot of money to boot,