The Winter of Debt
When you’re in heavily in debt, the burden can make you feel isolated. It’s almost like a never ending winter. You know you can’t spend money, you know that the money you are paying is going to interest. You are wondering, like the cold winter days in February, will it ever end?
The good news is that not only can you be debt free, you can choose how slowly or quickly you would like that to happen. In fact, there are four speeds. There is the super slow glacial method, the slow drip icicle method, psychologically satisfying snowball method and the super savvy avalanche method.
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The first thing that you need to do is to STOP adding to your debt right this very minute. If you are dependent on your credit cards to get you through the month, you are living beyond your means and need to take a good look at where your money is going.
I would start there before continuing with this article because if you are living beyond what you bring in, then you don’t have any extra money to pay down debt with. You will need to get real to cut expenses and/or get a side hustle to bring in more income before you can proceed with paying down your debt. Be honest. Be brutal.
The Glacial Method
First, the glacial method is just paying the minimum payment on each card every month. You will pay it off and depending on the interest rate on the card, you might be paying almost double for whatever you originally purchased, which is a really good way to look at it.
Would you buy those new outfits if they cost double what they do in the store? Even if you get them for half off, in the end you will have paid full price (or more) and you will be paying them off long after they go to the dumpster or charity.
Before purchasing anything and throwing it on a credit card, ask yourself, “if this was marked for double of what I am paying, would I still buy it?”
The Icicle Method
Second, the icicle method is when you pay a little extra every month on every debt you hold. Drip. Drip. This doesn’t require much explanation except that it differs from the snowball method because it spreads out any extra money to pay down debt across all debts.
It doesn’t concentrate the money onto any one single card or loan. If you have the extra money to pay on all of the loans, then it makes sense to abandon this method and go to the snowball method for faster pay off.
The Snowball Method
Third, the snowball method is based on the premise of a snowball rolling down a hill or a mountain. As it rolls down, it picks up snow. And, as it picks up snow it increases in size and gets heavier. Finally, as it gets heavier, it rolls faster. However, in financial terms, this method is based on the concentration of extra money you will find or earn, to pay down debt focused on the loan or card with the lowest balance first.
For example, say you have 7 loans/cards at different rates as follows (and these are in no particular order):
- Mastercard– balance of $668 at 22.9% interest rate and monthly payment of $141
- Car Loan– balance of $3744 at 18.24% interest rate and monthly payment of $79
- Visa 3 balance of $20,107 at 17.99% interest rate and monthly payment of $600
- Bank Loan 1– balance of $1480 at 16.24% interest rate and monthly payment of $66
- Discover – balance of $8585 at 13.24% interest rate and monthly payment of $194
- Bank Loan 2 – balance of $11057 at 12.24% interest rate and monthly payment of $245
- American Express – balance of $3826 at 10.15% interest rate and monthly payment of $42
The snowball order would go as follows:
- Mastercard @ $668
- Bank Loan 1 @ $1,480
- Car Loan @ $3,744
- American Express @ $3,826
- Discover @ $8,585
- Bank Loan @ 11,057
- Visa @ 20,107
Fortunately, with this method, you are not concerned with interest rates only balances, so that is why you will order them with the fastest balance pay off. Therefore, you begin hitting the card with the lowest balance first.
How much extra will you be able put down each month?
Next, you will make your normal payment on the first card/loan. In the example, it would be Mastercard which has a regular payment of $141. And now you have figured out that with selling unused items, cutting back and other side hustles, you can put an extra $500 per month toward debt.
Therefore, your new payment will be $641 ($500+141=$641) to Loan 1 and you will pay that off in less than 2 months. As you can see, the first month’s payment will almost wipe the whole loan out and the payment for the second month will only be $41.54.
The remainder of the $141-41.54 is $99.46 which will be added to your regular minimum payment to Bank Loan 1. The normal payment is $66 and with the $99.46 plus the $500 extra from side hustles will make your payment 665.46. Consequently, that loan will be paid off in four months.
The breakdown of the months to come will look like this:
| Pmt# | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| 1 | 641.00 | 66.00 | 79.00 | 42.00 | 194.00 | 245.00 | 600.00 |
| 2 | 41.54 | 665.46 | 79.00 | 42.00 | 194.00 | 245.00 | 600.00 |
| 3 | 707.00 | 79.00 | 42.00 | 194.00 | 245.00 | 600.00 | |
| 4 | 92.89 | 693.11 | 42.00 | 194.00 | 245.00 | 600.00 | |
| 5 | 786.00 | 42.00 | 194.00 | 245.00 | 600.00 | ||
| 6 | 786.00 | 42.00 | 194.00 | 245.00 | 600.00 | ||
| 7 | 786.00 | 42.00 | 194.00 | 245.00 | 600.00 | ||
| 8 | 786.00 | 42.00 | 194.00 | 245.00 | 600.00 | ||
| 9 | 12.31 | 815.69 | 194.00 | 245.00 | 600.00 | ||
| 10 | 828.00 | 194.00 | 245.00 | 600.00 | |||
| 11 | 828.00 | 194.00 | 245.00 | 600.00 | |||
| 12 | 828.00 | 194.00 | 245.00 | 600.00 | |||
| 13 | 537.83 | 484.17 | 245.00 | 600.00 | |||
| 14 | 1,022.00 | 245.00 | 600.00 | ||||
| 15 | 1,022.00 | 245.00 | 600.00 | ||||
| 16 | 1,022.00 | 245.00 | 600.00 | ||||
| 17 | 1,022.00 | 245.00 | 600.00 | ||||
| 18 | 1,022.00 | 245.00 | 600.00 | ||||
| 19 | 1,022.00 | 245.00 | 600.00 | ||||
| 20 | 1,022.00 | 245.00 | 600.00 | ||||
| 21 | 72.90 | 1,194.10 | 600.00 | ||||
| 22 | 1,267.00 | 600.00 | |||||
| 23 | 1,267.00 | 600.00 | |||||
| 24 | 1,267.00 | 600.00 | |||||
| 25 | 1,267.00 | 600.00 | |||||
| 26 | 1,267.00 | 600.00 | |||||
| 27 | 938.71 | 928.29 | |||||
| 28 | 1,867.00 | ||||||
| 29 | 1,867.00 | ||||||
| 30 | 1,867.00 | ||||||
| 31 | 1,867.00 | ||||||
| 32 | 1,867.00 | ||||||
| 33 | 1,100.50 |
Essentially, you are putting out the same amount of money every month. However, you will just apply the extra to the next loan on the list.
Consequently, you can see how psychologically satisfying this method is. Once one balance is paid, it feels you are making great progress which will give you incentive to continue.
And, with a starting balance of $10,250, you will have taken a little over two years to pay this off. With the glacial or the icicle methods, you would have taken 15 to 20 years. If you want to pay off debt just as quickly, but want to pay less interest, go to: Avalanche Method: Use The Avalanche Method To Crush Debt Fast.
Also, when you get unexpected money, you can apply it to reduce your debt more quickly. These include gifts, bonuses and selling larger items. Be sure to re-calculate your payoff date for extra inspiration and to see how long you have left.
Have you used the snowball method to get out of debt? How has your process gone? Were there any pitfalls? Do you have any advice for other readers? Leave your thoughts in the comments section below.
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