Monday, 16 December 2019

How to Pay off Debt With The Debt Snowflake

I build on the article that I wrote last time on the debt snowball vs. the debt avalanche. I've got another debt pay off strategy today and that is the debt snowflake. Some people do use it as their primary debt pay off method and that's why I didn't put it into last time article. Because I view it as more of a supplementary method that can be used with the debt snowball or the debt avalanche.

In this article, I will be covering
  1. What Is The Debt Snowflake?
  2. Things To Watch Out For If You Do Plan To Use It.
  3. Ways To Get "Found Money"
  4. Advantages/Disadvantages?

Let's Get Started

What Is The Debt Snowflake

It's a repayment strategy that focuses on helping you put "found money" to good use. For instance, if you find $20 in your coat pocket instead of letting it slip through your fingers with an impulse buy, you can put it towards paying off your debts. And these aren't obviously usually very big payments hence the name snowflake, but if done consistently over time it can help speed up your overall debt repayment plan. And in this article, you're going to find out why. 

Things To Watch Out For If You Do Plan To Use It

As hard as it may be to believe some companies do still charge transaction fees for using things like debit or credit cards, so make sure you're aware of any of those that you might run into. Also, make sure that you let your lender know that you want your snowflake payments to pay down the principal of your debt. Because if you don't explicitly tell them that, some of them will put it towards future interest payments which aren't exactly what you want. And make sure to check with your lender to see if there are any prepayment penalties for making more than the regular monthly payments that they want you to because some of them do have that. Finally, some credit cards only accept a certain amount of payments per period, so make sure you're not overdoing that.

Ways To Get "Found Money"

What are some ways that you can manufacture "found money". Well, obviously you can, like I said earlier discover a $20 bill in your coat pocket that's the easiest way, but it's not exactly that controllable. Same with things like tax returns or unexpected rebate checks in the mail, they're great but they're also not that controllable. but there are other things that you can do to get more quote-unquote found money, and it's by being more financially efficient. Let say you're already planning in your budget to go out to a restaurant once a week. And say this week you and your wife were going to get the subway. Instead of each of you getting your own six-inch sub, you guys could get one twelve-inch sub and slit it and save a couple of bucks. 

You can also do things while you're making your budget like finding your latte factor and getting that cut out. Now lets' put into perspective how powerful this debt snowflake can be. Just as an example that I'm pulling off the top of my head here.

Let's say that Jane has student loan debts that are $50,000 and she's going to be paying them like a lot of people over the next 10 years. If she can manage to find on average around $5 a day and use those for snowflake payments, that cuts her loan term down by 2 years and 8 months, From 10 years or 120 months all the way down to 88 months. And at $10 a day it's cut by 4 years and 2 months. All the way down to 70 months. She almost cuts her loan term in half just by making $10 a day in snowflake payments. That's just crazy to me and when we actually look at the numbers she saves quite a bit of money by doing this as well. If we were to assume her original loan like we said was $50,000 at a 4.5% interest rate which is pretty common for student loans, she would end up paying $12,183.5 in interest, over the 10-year period that her student loan was outstanding.

However, by adding in those snowflake payments not only does she lower the amount of time that she's in debt. But she also cuts the amount of interest that she pays down significantly, for instance, with $5 a day in snowflake payments that interest goes all the way down to $8.795. And with $10 a day in snowflake payments it goes all the way down to $6,895, which means that just by paying an extra $10 a day in snowflake payments, she saves herself over $5,200.That's the true power of the snowflake method.


As I said the debt snowflake really tries to help you put your found money to use. the advantage similar to the debt snowball is very psychological in nature because it makes you feel like you're making more frequent progress, maybe even progress every day if you happen to be finding money every day. It also makes you think a lot more critically about where your money is already going and why. As well as finding ways to be more financially efficient. And again I'll talk about ways to do that later. But it helps you to form very strong money habits that will help you long after your debt is gone.


As far as disadvantages go, I suppose you could say that you aren't going to be wiping out mounds of debt with this strategy but again as it's more of a supplemental strategy that's meant to be paired with a more overarching strategy, I don't think that's much of a disadvantage. And in fact, there aren't really many disadvantages that I can think of, as long as you do your due diligence beforehand and know what to watch out for when implementing this strategy.

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