Maybe you’re already familiar with two of the most popular strategies for debt elimination: debt snowball and debt avalanche. But, what about the small saving approach called debt snowflake? Can you pay off student debt faster using the debt snowflake method or is it better to use this approach in conjunction with another proven repayment strategy?
What Is the Debt Snowflake Strategy?
It’s not quite a snowball and not quite an avalanche. Levon L. Galstyan, CPA at Oak View Law Group, said debt snowflake is somewhat a branch of the debt avalanche and snowball methods. Unlike its predecessors, however, debt snowflake does not work with a structured plan.
Lauren Anastasio, director of financial advice at Stash, said debt snowflake is a tactic used by consumers to make small “micropayments” to debts.
“Rather than budgeting how much you’re paying against your debt each month, the snowflake approach would have you round up any extra savings you have day-to-day and put those small dollar amounts towards the debt with the expectation it will help gradually pay a little extra each month,” Anastasio said.
How Does a Micropayment Work?
Galstyan said micropayments are small payments you make throughout the month to your creditors. Making micropayments, small as the payment may be, can help lower your interest rates and slowly reduce your average balance. Paying a little extra on your student loan debt, especially on a daily basis, can slowly reduce your balance and enable you to repay the debt faster.
The way a micropayment differs from a minimum monthly payment is that borrowers actively seek out ways to increase payments or add extra payments.
“When you decide to pay off your debt, you budget to afford the minimum monthly payment, but you don’t plan the extra payments. Instead, you look for ways in your daily routine where you can save a couple of dollars,” Galstyan said.
Where Can I Find Snowflakes?
Where can borrowers find these elusive snowflakes, the small savings that make a big difference in paying off student loan debt?
Galstyan said snowflakes may be found in things you do regularly. For example, instead of buying a 12-inch sub you might get a 6-inch sub instead. Save the change you receive from shopping or commuting. Make your own coffee instead of going to Starbucks or pick a smaller size option like buying a tall instead of a grande.
“After saving all the money, you might have at least $10 in your hand at the end of the day,” Galstyan said. It’s a small amount, but it’s still a snowflake. If you continue saving like this — at least $30 of snowflakes a week — that would be $120 extra to add to student loan payments.
Using Debt Snowflake in Conjunction With Another Repayment Method
Once you have snowflakes, the next decision is determining which debt you’ll need to apply your micropayment toward. Anastasio said this means choosing between debt snowball or debt avalanche methods.
Does that mean borrowers can’t repay student loans entirely based on the debt snowflake approach? Probably not. Remember that debt snowflake lacks the structured plan of its repayment option counterparts.
The more effective approach is to use debt snowflake in conjunction with another repayment method. Anastasio uses the example that borrowers can snowflake micropayments toward student debt while using the prioritization of the snowball or avalanche method.
Those who like the idea of paying off their smallest debts or wish to clear multiple debts may pick debt snowball. Borrowers with high interest or sore thumb debts may opt for debt avalanche. Sprinkle in those debt snowflakes for either a snowball or avalanche approach and watch as the overall student loan balance starts to decrease — and the borrower experiences student debt relief.
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