During the twenty years I carried consumer debt, I made several attempts to change my habits. Every time I decided to lick the debt monster, I would follow the advice in the financial books: I’d arrange my debts in order, listing the one with the highest interest rate first. I’d pay extra on this bill for a couple of months, but then give up in frustration because I didn’t seem to be making any progress — $100 extra on a $12,000 balance doesn’t make a dent.

Eventually I read Dave Ramsey’s The Total Money Makeover. His debt snowball method changed my life. Ramsey writes:

Personal finance is 80 percent behavior and 20 percent head knowledge. The Debt Snowball is designed the way it is because we are more concerned about modifying behavior than correct mathematics…Being a certified nerd, I always used to start with making the math work. I have learned the math does need to work, but sometimes motivation is more important than math. This is one of those times.

Humans are complex psychological creatures. We’re not adding machines. If we were adding machines, we wouldn’t accumulate consumer debt in the first place! My debt wasn’t acquired logically — it was a product of emotional and psychological responses. What I needed to get rid of it wasn’t a mathematically ideal model, but a psychological “hack” — I needed the debt snowball.

With the debt snowball, you don’t start with your highest interest rate obligations, but those with the smallest balances. You attack the debts you can eliminate most quickly. This may be counter-intuitive — in fact, it really bothers some people — but it works. (Here’s more about the debt snowball method.)

I recently discovered a clever extension of Ramsey’s snowball metaphor. Jaimie at I’ve Paid for This Twice Already practices what she calls “snowflaking”, an idea that seems to have originated at the iVillage debt support group. (This group looks like a great resource for those struggling with debt, by the way.) Jaimie writes:

What are snowballs made of? Snowflakes! Every month without fail, I pay a fixed amount to debt that is above my minimum payment due (about $800). I also try to collect little bits of money wherever I can, and to apply those to my top priority debt (my credit card).

I take surveys online, I sell possessions on craigslist and eBay, and I have yard sales. Any money I get from these endeavors goes directly to my debt. I also keep a strict accounting of all the money that comes in, 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 over $200 extra going to my credit card debt every month due to these snowflaking efforts.

Many small snowflakes make a snowball, and no amount is too small to snowflake.

In December, Jaimie shared her five golden rules for snowflaking:

  1. Snowflake early and often. Start now and make it a habit. If you get accustomed to this, it can become a game. Snowflaking can almost make debt reduction fun.
  2. No amount is too small to snowflake. “I have snowflaked as little as $1.04 and as much as $1313.74 and everything inbetween,” Jaimie writes. “Any amount can be a snowflake, and any amount can make a difference”
  3. Anything can be a snowflake. Did a friend repay $5 she borrowed last week? Did you take cans and bottles in to redeem the deposits? Did Aunt Marge send you $20 for your birthday? Was your tax refund bigger than expected? All of these can be snowflakes.
  4. Snowflake as immediately as possible. This is key. Apply your snowflakes to debt as soon as possible, before you have a chance to spend the money. I know from experience how easily those extra dollars become books or videogames or new clothes. Snowflake when you get the money.
  5. Keep track of your snowflakes to use as motivation. “A lot of small amounts may not seem like a whole lot if you don’t keep track of them,” Jaimie advises. “Keep a running total once a month to see how those small amounts add up.”

Though I didn’t have a name for it at the time, snowflaking is the technique I used in the final stages of my own quest for debt elimination. I enjoyed taking any extra cash I had and throwing it at my home equity loan. It made me feel good. (It even felt better than buying comic books, believe it or not.) This was how I knew my relationship with money had improved and was almost healthy.

Just as the notion of the debt snowball seems absurd to some of those who have never fought with debt, snowflaking may appear a little obsessive. But I believe both are valuable tools. As someone who struggled with debt most of his life, I’m grateful to have heeded Dave Ramsey’s advice. I’m also glad to have discovered “snowflaking”!

(Note: The debt snowball and debt snowflake concepts can also be applied to other financial goals, such as building an emergency fund, saving for retirement, or paying down your mortgage. I’m currently using these techniques to save a cash cushion so that I can completely quit my day job to blog full time.)

Photos by gluemoon and redjar.

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