Thursday, April 19, 2012

The Debt Snowball Method of Lifestyle Change

Have you ever heard of the debt snowball method of debt reduction?

It's somewhat counter-intuitive in that the method recommends regardless of differences in interest rates you pay off your smallest debt first, pay only the minimum on your larger debts, and then slowly work your way up your line paying off your next smallest debt.

While it may not make sense mathematically its theory suggests you'll pay off your debts faster consequent to the more frequent psychological benefits of seeing debts disappear. It's about accumulating "quick wins" and then using the pride generated therein to fuel forward momentum.

For some people, the same may be said to be true about lifestyle change.

The thing about trying to improve lifestyle - change is difficult, and sometimes, almost like being deeply in debt, people feel that there's so much in need of changing that they get overwhelmed even thinking about it.

If you're struggling with the sense of an overwhelming amount of change, why not try the snowball method? Spend some time this weekend with a good cup of coffee and make a list of as many specific changes you'd like to make, and then rank them in order of ease.

Put the list somewhere prominent and then one by one, start working on crossing them off.

Pride builds a mean snowball.

Bookmark and Share


  1. Hmmm. And 'fun' can help make things easier. Kind of like this idea.

  2. No pun intended, this is food for thought. Thanks.

  3. Anonymous10:52 am

    Doesn't make sense to me.
    Pay off the $1000 low interest line of credit but keep the payday loan with the loan-shark interest rates?
    Way too expensive.
    That kind of illogical wishful thinking get can people into debt in the first place.

    The diet industry loves this kind of thinking. It provides all sorts of things for people to do - and pay for - while never actually requiring controlling food intake.

    Gives people the feeling that "I've tried everything but I just can't lose weight" when they've been following all sorts of tips and tricks and programs and checking off baby steps that really are only sidelines to the problem.
    They claim "I've tried everything" while they're in denial that they are still eating too much and/or eating the wrong food.

    If you're going to make a list of changes to make, rank them in terms of results as well as ease, so you don't end up doing 10 easy things that don't matter and never get around to the tough one that is the worst problem.

    1. Anonymous10:15 pm

      I think it's fair to say that any financial specialist who promotes the 'debt snowball' tactic would make an exception for payday loans vs a low-interest loan.

      This is normally a concept that is brought up in terms of a person having 8 or 12 or even more credit cards, and needing to figure out how to pay them off. It's mathematically superior to go in terms of interest rate, but some people do better going in order of balance size because of the psychological reinforcement it brings.

      Paying off in terms of interest rate doesn't help as much, basically, if you start with a really huge balance and quickly become discouraged because you're making payment after payment on it and not really feeling like anything is changing.

  4. especially for those of us with reduced self-confidence.... this is a workable way to build it! thanks!

  5. Anonymous11:56 am

    This method makes sense for any kind of behavioral change that depends on motivation and morale. (And what kind of behavioral change doesn't?) Setting small goals and achieving them leads to success and makes it easier to move on to bigger goals and bigger successes. I have applied this method to work projects, exercise, food, housework, and yes, debt. There's room for improvement in all those areas of my life still! But I would have to say that my late-adopted motto of "start small" has helped me to be much more effective and balanced in all areas. Maybe even more importantly, it has saved me much mental suffering.

  6. I can see how this might be a great way to trick yourself into thinking that you're making the most possible progress, and getting one less bill in the mail would be a good feeling.

    But, this is contrary to the process that I've adapted (based on the 7 Habits). This teaches that you need to take care of the "big rocks" first. That means taking care of the little things first won't leave room for the big stuff (like a huge debt). And, I think it would be pretty likely for people who need this approach to take care of all of the little debts, and then be overwhelmed by the big ones at the end.

    I'd think that starting with highest interest rate debt, and chipping away would clearly be the best approach (from a dollars and cents perspective). Though, when it comes to lifestyle, I agree that any positive change is good.

    Just my opinion though.

    1. Anonymous12:14 pm

      .... He did make it clear that this want from a dollars and cents perspective, it was more from a psychological one. And yes, as someone with experience working with people making lifestyle changes, many people have had failure trying to do MAJOR overhauls (this is what fad diets actually promote) and thus they lose their confidence, however when they start with smaller, more realistic changes and see success, this increases confidence and they are more likely to be successful with the major changes down the road.

  7. Anonymous5:37 pm

    This is the system that my husband and I used to pay off our debt and I loved it. One thing the blog doesn't mention is that as you start paying off your debt, you use all your extra money towards it. As your debt become smaller, you still pay at least the original minimum payment as well as the other extra, so you eliminate it much quicker than you would a large debt. That sense of accomplishment drives you to pay off the next one and you use all the money you would have been paying toward the first debt's minimum and any extra, in addition to the minimum you're already paying.

    Here's an example: Let's say I owe $1,000 ($25 min), $2,000 ($125 min) and $5,000 ($200 min) and three different credit cards. I decide to use the snowball method to pay off debt. I start paying the $25min + all my extra money on the $1000 debt. If I can gather an extra $75/month to pay against that debt, I can clear this debt in 10 months (approx - obviously with interest, it would take a little longer). After those 10 months, I take that $100 ($25min + $75 other) and pay it, in addition to the $225 min on the $2,000 debt. Then I am paying $325/month on that debt. It would take approx 6 more month and I will have paid that off. Then I only have one credit card debt left & I can put the $325 + the $200min against it. This means I'm paying $525 per month against one debt. Another 10 months (just over 2 years) and I've paid all three cards off.

    With this method, you see the progress better, learn to discipline yourself better (this only works if you stop overspending in addition to budgeting & paying off debt), and studies have shown that people perform better with this system. If those in debt had the self-discipline to pay off their cards the other way, they wouldn't have gotten into such large debt to begin with. It doesn't mean that other systems don't work, it just means that this works well, too, and plays to the personalities that excel with positive, rewards based affirmation and seeing results.

    To me, if a system works to get you out of debt, you might as well do it. The reality is that you need to learn in the process how to budget and not spend beyond your means so you son't end up in the same boat again. This is true of all areas of life.

  8. I've been an advocate of using this type of approach for certain people. In some cases motivation matters more than math. Quick wins keep you motivated, and there is no easier way to rack up those wins than by shrinking the change. I've used this to great effect like building the flossing habit, and I'll continue to use this strategy whenever I have a big change to make. Thanks Yoni, really big fan of the blog!