I’d like to share a great concept or strategy to pay off debt called “Snowflaking”, which I found well described in a few personal finance blogs. The concept of snowflaking is an interesting spin off from Dave Ramsey’s debt snowball strategy for eliminating debt. I discovered that it was originally discussed over at the Debt Support Group at iVillage and has been well promoted by a fellow personal finance blogger, Jaimie at I’ve Paid For This Twice Already.
So how do these debt strategies work? Dave Ramsey’s debt snowball approach instructs fellow debtors to make a list of their debts from the smallest to the largest. Then, you work diligently to pay as much extra money to the smallest debt on the list while paying the minimum payments on everything else. Snowballs are essentially made of snowflakes. If you have ever watched a snowfall, you know that the tiny flakes can accumulate to a great deal of snow very quickly. From this, you can see where the financial concept of snowflaking got its name. Debt snowflaking refers to taking little bits of money that you make each month and applying them directly to your lowest amount of debt.
Wipe Away Debt Problems With Debt Snowflakes
Most online sites recommend paying the extra money towards your debt as quickly as you receive it. If you really think about this concept, it makes sense. If you are decreasing your debt on a daily basis, you are also decreasing the amount of interest you are going to be paying at the end of the month because interest is compounded daily on your credit card. Therefore, if your daily balance decreases through the month, this will equal less interest accrued on your credit card statement at the end of the month. Most credit cards offer an online payment option that allows you to do this. However, some cards may limit the number of payments you can make within a certain period. For instance, my American Express card will only allow you to make payments every 72 hours.
Where Do You Get The Extra Money To Begin Snowflaking?
Here’s one basic question that a lot of readers have: where do you get the discretionary income to apply towards snowflaking? Most “snowflakers” (those who engage in snowflaking) get extra money by selling items on eBay, on Craigslist, and at yard or garage sales. Some people have also tried to make money blogging or have been able to pick up extra income by taking online surveys or by pursuing special offers and cash bonuses online through various sites. There are also cash back rewards sites such as Ebates and BigCrumbs, which can help with additional savings. If you’re at all curious, you can check our review of the Ebates site here, as well as our BigCrumbs review here. Many snowflakers also take the money they’ve saved by using coupons or other offers, and apply this money that they would have normally spent, to their snowflaking money. You can even apply cash gifts or work bonuses to your snowflaking stash.
What Are The Pitfalls of Debt Snowflaking?
When you start making some extra income, it becomes quite tempting to start spending it on frivolous things. This is why it is critical that you keep accurate and detailed records of the extra money coming in from outside sources. An excel spreadsheet or a simple list on paper is a great way to do this. There was a month when I tried this concept, when I got a large yellow poster board from the dollar store. I hung the poster board in my hall, along with a marker and string attached to the board. Every time I brought in a little extra money, I wrote it on the board. I sold items through eBay and did a few other transactions. Before the end of the month, I had made an additional $700 and I was able to pay off my American Express card balance in one month.
Also, when making this extra money, be sure to keep it in a place where you are not tempted to spend it (check out this SmartyPig review for some ideas; SmartyPig and similar services are perfect for your savings goals). Of course, if you pay the snowflaking money towards your debt immediately, you can bypass any temptations very easily.
Debt snowflaking is a great strategy for those just getting started with paying down debt. It provides an easy way to decrease small debts, sometimes within a month’s time. You will be very surprised at the amount of money you accumulate if you keep track of your cash as soon as it comes into your possession. For those interested, here are additional ideas for paring down your credit card debt.
Created April 15, 2010. Updated June 27, 2012. Copyright © 2012 The Digerati Life. All Rights Reserved.