Two of the most popular debt payoff strategies are debt snowball and debt avalanche. Debt snowball, popularized by Dave Ramsey, involves paying off your debts from the smallest to the largest balance. Debt avalanche involves paying off your debts from highest to lowest interest rate.
Thereâ€™s another winter-related strategy you might want to consider if youâ€™re looking to repay significant debt: debt snowflake. Ideally, this strategy should be used in conjunction with either of the above methods. It helps you save small, snowflake-sized amounts of money each day or week to put toward your debt.
Read on for everything you need to know about the debt snowflake strategy.
The debt snowflake strategy involves saving in little ways each day and then putting those small savings toward your debt. Ideally, debt snowflake shouldnâ€™t be used by itself, but rather with another debt repayment strategy.
Priya Malani, founding partner of Stash Wealth, a financial planning company, said she wouldnâ€™t call debt snowflake a â€śmethod,â€ť per se. â€śI would think of it more as a bonus or add-on strategy that works in conjunction with one of the main methods of debt paydown, [like the] snowball or avalanche,â€ť she said.
So how does it work? Itâ€™s quite simple. Letâ€™s say you bring your lunch one day instead of spending $8 on a salad. You can put that $8 toward your debt immediately by making a small payment online. Or you can keep track of your â€śsnowflakesâ€ť and put them toward your debt at the end of the month.
There are many areas you can reassess in your daily life to find small savings. Consider the following ways to cut back:
The debt snowflake strategy isnâ€™t for everyone. Below, weâ€™ve identified the top three pros and cons associated with the strategy.
Saving $5 here or $7 there might not seem like it will make a difference in your debt, especially if you have a large balance. But it does.
Letâ€™s say you have $5,000 in credit card debt with a 15% interest rate and a minimum monthly payment of $100. You normally pay $200 per month toward your debt but are able to put an extra $100 toward it by using the snowflake strategy to cut out weekly lattes and other small expenses. Hereâ€™s how much of a difference that extra $100 a month can make:
|Strategy||Total Debt||Minimum Payment||Monthly Payment||Interest Rate||Time to Pay Off Debt||Total Interest Paid|
|No snowflake||$5,000||$100||$200||15%||31 months||$1,033|
Perhaps the debt snowflake, debt snowball and debt avalanche methods arenâ€™t for you. Luckily, there are myriad ways to pay off debt. Below are three other strategies to consider.
Debt consolidation loan. One common way to pay off debt is through a debt consolidation loan. This involves combining all your debt and taking out a personal loan that will go toward the debt as one monthly payment.
Interest rates on debt consolidation loans are typically lower than interest rates on credit cards.
Balance transfer credit card. If your debt is credit card-related, you might want to consider a balance transfer credit card. These cards typically have introductory rates as low as 0%, which can allow you to repay your debt while saving on interest.
This strategy is only worthwhile if youâ€™re certain you can repay your debt within the introductory rate grace period since the rate after that could be just as high or even higher than your previous rate.
Debt management. If you hold a significant amount of debt and have struggled for years to pay it off, you might benefit from credit counseling. Consider meeting with a nonprofit credit counselor who could help you come up with a debt management plan.
Besides helping you stay on track with a debt management plan, nonprofit credit counselors can teach you about good financial habits that help avoid getting into debt again.
Whichever strategy you choose doesnâ€™t matter as long as youâ€™re committed to becoming debt-free.
â€śThe right method is the one that works for you â€” the one that keeps you motivated and going â€” because everyone has different personal circumstances,â€ť Harzog said. â€śYou have to be very honest with yourself. Take a close look at your budget and your cash flow, and just see what you can do and pick the right method for yourself.â€ť
By clicking â€śSee Offersâ€ť youâ€™ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.