If you’re working to get out of debt you know that the process can be a long and painful one. The way to shorten the process – and save lots of money in interest payments – is to pay more than your monthly payments require. But coming up with extra payments can be hard to do. Fortunately, you don’t have to come up with large sums of money in order to pay down your debt quickly. There is a method of debt repayment where small amounts of money, even very small amounts, can add up to big progress.
What I’m referring to is making frequent micropayments on any loan you hope to pay off early. This process is often referred to as snowflaking, which is a takeoff on the “debt snowball” method of getting out of debt, popularized by friend of PerkStreet, Dave Ramsey
Snowflaking involves sending extra payments, no matter how small, to the loan you’re currently trying to pay off. Any time you can come up with an extra $20, $10, or even $5, you send it to your lender.
Under this process, no amount is too small.
Snowflaking works because it keeps you motivated to look for ways to pay off debt. Did you sell something on eBay? Send the money to your credit card. Did Grandma’s birthday check come in the mail? Apply it to your car loan. Honestly, the whole thing can get quite addicting and –- dare I say it — even fun.
The only thing you need to do to begin snowflaking is to check on your lender(s) prepayment policy. First, make sure that there is no penalty for prepayment and then check to see if there is a restriction on how many payments you can send in during a month’s time. If you’re only allowed to send in one or two payments a month, you’ll need to keep track of your snowflakes and find a way to keep from spending them until the end of the month. If your lender doesn’t have a restriction, however, you can send those snowflakes in right when you get them. That way they don’t melt! Debts that can be paid with a debit card are a great pairing with PerkStreet, because you can put your snowflakes into your PerkStreet account and then earn cash back every time you pay them.
I’ve been putting the snowflake method into practice over the last several months and was surprised to find that I was able to come up with over $3,000 worth of snowflakes in three months’ time. The largest snowflake was $375 in income from an extra job and the smallest was $7.50 from selling a book on Amazon. My snowflakes included things like a couple of small birthday cash gifts, rebates I received for buying contacts and a new cell phone, and even my PerkStreet rewards.
I keep track my snowflakes so I can see my progress and to be able to look back over old snowflakes to get ideas for new ones. I highly recommend doing this as a source of motivation. I use an Excel spreadsheet as my snowflake tracker, but a spiral notebook would work just as well.
I also like making plans for all those snowflakes once I become debt-free. In fact, if debt reduction isn’t one of your goals, consider using the snowflake method for savings instead. Over time you could snowflake your way to new furniture, a dream vacation, or even a new car.
Are you using the snowflake method to pay down debt? Please share your tips in the comments below.