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The snowball approach to getting out of debt

Most folks who find themselves overwhelmed by debt didn’t plan on being there. Which is why taking the opposite approach and having a solid plan to get out of debt makes good sense. But there are lots of debt-reducing strategies out there, so which one is right for you?

While there is no one “right” strategy, three of the more popular approaches for paying down debt use “snow” metaphors to describe the process. They are all proven methods, but just as everyone didn’t get into debt the same way, everyone won’t get out the same way. Consider each of the following snowy debt-reducing strategies in deciding which method might best help you crystalize your own plan to start melting away your debt.

1. The Snowball Approach

  • Pro: Provides short-term victories that inspire and motivate

  • Con: Could take longer and cost you more in interest than the “avalanche” method

This method—just like a snowball rolling down a snowy slope and getting bigger—is all about gaining momentum. It relies on you achieving smaller victories up front and then building off of your debt-eliminating successes. The key to this approach is focusing first on paying off your smallest debts before concentrating on your larger, harder-to-move-the-needle-on debts.

Let’s say you have four debts that total $20,000: $10,000 owed on your car, an $8,000 student loan, a $1,500 outstanding balance on your credit card, and a $500 medical bill. With the snowball method, you would make the minimum payments due on the first three accounts and then use any discretionary funds in your budget to pay more than the minimum on the medical bill in order to eliminate it, the smallest debt, first.

Once the medical debt is gone, you would continue to make minimum payments on your car and student loan while applying funds you’ve saved by eliminating your medical bill toward paying more than the minimum due on your credit card balance—now your smallest debt—in order to pay it off next. Once it’s gone, your student loan gets more funds until you only have a car payment left, which you pay off as soon as you can with all of the freed-up capital you now have from eliminating all your other debts!

This method is more about modifying your behavior than it is about crunching the numbers. And the more success you experience with this plan, the more you should be willing to modify your behavior to achieve even more success!

As financial guru Dave Ramsey, a major proponent of the snowball method, suggests, part of your behavior modification should be to find ways to cut costs and bring in extra income—say, by cutting out your expensive morning latte or picking up a side job—in order to build momentum from your snowballing efforts even quicker.

2. The Avalanche Method

  • Pro: Could save you more money and eliminate debts faster than the “snowball” approach

  • Con: Immediate success is less visible—especially if your highest-interest debt is also your largest—which could affect motivation

With the avalanche approach, it’s all about the interest rates you’re paying. You figure out which debt is charging you the highest interest rate and concentrate on paying it off first. This could save you a substantial amount of money because compound interest rates can cause the total amount of interest due on your debt to add up fast.

Say you have the same debt mix and total amount owed as above, but the interest rates you’re paying are as follows: 6% on the $10,000 car loan, 8% on the $8,000 student loan, 17% on the $1,500 credit card balance, and 5% on the $500 medical debt. The avalanche method works similar to the snowball method, only the smallest balance doesn’t get paid off first—unless it’s also the highest-interest-rate debt.

Using this approach, you would make minimum monthly payments on your car loan, student loan, and medical debt and use any discretionary funds in your budget to pay more on your outstanding credit card balance until it’s paid in full. Then, once your credit card debt is eliminated, you would continue paying the minimum due on your car loan and medical debt while focusing on paying more on your student loan until it is paid off. The process continues until you’ve eliminated all of your debts, having knocked them off one by one in the order of highest to lowest interest rate.

Just like with the snowball plan, it’s important to find savings and bring in extra income any way you can to keep the process and momentum going—so behavior modification is still important. But math plays a larger role in this method because you want to get rid of highest-interest-rate debts as soon as possible to hopefully save on the amount of total interest paid.

3. The Snowflake Plan

  • Pro: Finds day-to-day savings and is compatible with either of the above methods

  • Con: More of a supplemental plan than an actual strategy

The same way actual tiny snowflakes quickly add up to inches or even feet of the fluffy white stuff, debt snowflakes accumulate to help you chip away at your debt. With this supplemental plan, it’s all about looking for small, steady contributions to achieve your goal of becoming debt free.

Find a $20 bill in a pair of pants you haven’t worn in a few months? Apply it toward your outstanding credit card balance. Have a garage sale and make $300? Use it to make an extra payment on your car for that month. Save $15 on groceries this week from using coupons? Go ahead and throw that cash in a jar reserved for paying off that $500 medical bill and pay a little extra on it this month.

With the snowflake plan, it doesn’t matter whether you’re focusing on paying higher-interest debts or smaller-balance debts first. The point is you’re directing small windfalls you might otherwise not pay attention to toward reducing outstanding balances, which should help melt your debt away faster.

Concentrate On Minimums to Maximize Your Efforts

It’s important to emphasize that, no matter which of these methods you use, you must continue to make at least minimum payments on all of your debts. In other words, don’t think you’ll find the money to pay off the debt you’re concentrating on by not making any payments on the rest of your debts. If you take this approach, your other debts will become past due, and your credit score will almost certainly take a hit.

Budget enough to cover the minimum payments on all of your debts and then find extra money to pay down the debt in your sights by cutting expenses, “snowflaking,” or increasing your income with a side hustle or earning money from a hobby.


About the author:

Sean P. Egen

After realizing he couldn’t pay back his outrageous film school student loans with rejection notices from Hollywood studios, Sean focused his screenwriting skills on scripting corporate videos. Videos led to marketing communications, which led to articles and, before he knew it, Sean was making a living as a writer. He continues to do so today by leveraging his expertise in credit, financial planning, wealth-building, and living your best life for Credit One Bank.




This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.


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