Snowflaking: A primer
How to use little sums to pay off debt
I have had several questions lately about snowflaking -- what is it, why do I do it, can we see examples of it -- so I thought I would write a quick primer answering those questions and more.
Snowflaking is a spinoff of the snowball approach to debt reduction popularized by Dave Ramsey. With the debt-snowball method, you figure out what amount you can pay to debt every month, and then you keep paying that amount, even as your debts shrink and your minimums get smaller.
To implement it, in a nutshell, make a list of all your debts, order them from either smallest to largest or highest interest to lowest interest (that is a debate in itself), and you focus all extra money above the minimum payments on a single debt -- one with either the smallest total or the highest interest.
When you eliminate a debt, you apply the payment you were making to that debt to the next debt in line until the snowballing effect of decreasing minimums and increasing amounts eliminates all the debts on your list.
Well, what are snowballs made of? Snowflakes! I have a set amount I pay to debt without fail every month that is above my minimum payment due. On top of that, I also try to collect little bits of money wherever I can, and I apply those as well to my top-priority debt as immediately as possible.
I take surveys online, sell possessions on craigslist and eBay, and have yard sales, and any money I get from these endeavors goes directly to my debt. I also keep a very strict accounting of all the money that comes in every month and what I spend, and everything left over at the end of the month not earmarked for future expenses also goes directly to debt.
These are my snowflakes. I have averaged more than $200 extra to pay down my credit card debt every month due to these snowflaking efforts.
Many small snowflakes make a snowball, and no amount is too small for me to snowflake. I used to pay my credit card directly every time I collected a snowflake through the company's online interface. But now that I have moved my credit card debt to another card with a 0% interest offer, I collect the snowflakes and pay them once a week. (There is a limit to the number of payments I can make to this card a month.) If you are able to and your debt is not at 0% interest, I highly recommend the "pay snowflakes immediately" method. The faster your balance is reduced, the less interest you will accrue.
So, that is my snowflaking method. Small efforts matter, and many little things can add up to a huge snowstorm. I use it because, of all the methods I've tried, this has kept me the most focused and deliberate about debt reduction and eliminated debt most quickly.
I cannot take credit for the idea or the implementation. Many other personal-finance gurus and bloggers alike have used this method before me, and I first read about it on an iVillage Debt Support Group message board. I am just a subscriber to it. Maybe someday I should read some Dave Ramsey and learn from the granddaddy of the snowball himself.
Published April 17, 2008
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