Snowball Method or Snowflake Method? Which is Right for You?

Date posted: April 14, 2017
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Snowball Method or Snowflake Method? Which is Right for You?

Photo Credit: Aaron Burden

To be successful when paying off debt, it helps to have a strategy. Instead of just throwing your money at this debt or that debt, you should have a plan and an estimated debt free date.

But if you have more than one debt, it can be difficult to know which one you should pay off first. Should you tackle your high-interest credit card debt or your much larger student loans? Fortunately, you aren’t the first person to pay off their debt and the many Canadians that came before you have devised two excellent methods for paying off debt that will help you prioritize which debt to pay off first. Let’s take a look at them below:

The Snowball Method

The snowball method of debt repayment is a strategy popularized by Dave Ramsey that advocates paying off your smallest debts first, and then moving on to the larger debts. This method of debt repayment lets you focus on eliminating the total number of debts by paying off the smallest debts first, and then when you get to your biggest debts; you’ll only have one or two to tackle.

Let’s take a look at the following debts, and then place them in the order you would pay them off if you were using the snowball method.

  • Credit Card Debt: $5,000 at 19.99%
  • Car Loan: $15,000 at 2.9%
  • Student Loans: $20,000 at 5.5%

Now based on the snowball method, this is the order that you would pay those debts off (from smallest to biggest):

  • Credit Card Debt: $5,000 at 19.99%
  • Car Loan: $15,000 at 2.9%
  • Student Loans: $20,000 at 5.5%

Based on the snowball method, you would tackle the credit card debt first because it has the smallest balance, then the car loan, and then the student loans. By the time you tackle the student loans, you will only have one debt left.

The Snowflake Method

While the snowball method allows you to whittle down your debts and gain confidence in your debt repayment skills by giving you small wins early on in your debt repayment journey, it does have one problem that many people can’t get over: you usually end up paying more interest than you need to.

You end up paying more interest because when you tackle your debts by size, you may leave some higher interest debts until the end of your debt repayment journey. Delaying paying off higher interest debts will result in you paying more interest than necessary. Depending on your personality, this may be totally fine, and you’ll do better with the snowball method. But if you are the type of person who loves math like me, that extra interest paid will nag at you, and it might make more sense to use the snowflake method.

With the snowflake method, you pay off the debts with the highest interest rate first, regardless of balance. The snowflake method ensures you’ll pay the least interest possible on your debt repayment journey.

If you use the snowflake method on the debts above, this is the order in which you would tackle them:

  • Credit Card Debt: $5,000 at 19.99%
  • Student Loans: $20,000 at 5.5%
  • Car Loan: $15,000 at 2.9%

The big difference between the two methods is that when using the snowflake method, you’ll tackle your student loans first, even though it has a higher balance.

Choosing Between The Debt Snowball or Snowflake Method

Choosing whether to use the snowball method or the snowflake method for your debt repayment comes down to personal preference. If you’re new to paying off debt or you have many smaller debts that you’d like to eliminate quickly, then the snowball method might be best for you. If you prefer to pay the least amount of interest and you’re confident you have the staying power required to pay off your high-interest debts first, the snowflake method will work well for you.

Whichever method you choose, the important thing is to become debt free, one way or another.

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