If you have student loans, then you’re probably very familiar with the debt avalanche and debt snowball methods as student loan repayment options. But what about debt snowflaking?
This is a relatively new idea for paying off debt that’s more budget-friendly for recent college graduates. And if you need help managing your student loan payments, this new strategy could be a good fit.
Here’s how to tell if the debt snowflaking method will help you pay off student loan debt faster. And, if it’s one of the best student loan repayment options out there for you.
What is debt snowflaking?
Debt snowflaking is a strategy that focuses on paying off a debt in extremely small chunks of money. These are sometimes called micro-sized debt payments.
This is one of the student loan repayment options that are somewhat easier on your budget. That’s because you can put down four $25 payments instead of one $100 lump sum.
Think of it this way. The debt snowball method recommends throwing as much money towards one debt as possible. Meanwhile, you’re paying the minimum amounts on the rest. As you pay off one debt balance you’ll tackle the next debt with all applicable funds and continue this “snowball” effect until you’re debt free.
On the flip side, debt snowflaking takes a less drastic approach. It combines very small amounts of money, or “snowflakes,” that consistently reduce your balance. They also save you a bit more money on interest payments over the long term.
How the debt snowflaking method works
This one of the student loan repayment options that hones in on the idea that the slow and steady approach is the one that wins the race.
Debt snowflaking can help you feel like you’re progressing more quickly with your student loan repayment since your balance continues to tick down on a regular basis.
It can be a good alternative for how to pay down debt for the long term. That’s because it gives you both financial and psychological benefits.
Here’s a breakdown of how this debt payoff plan works.
Make a list of all your student loans and other debts. Then, organize them from the lowest balance to the highest.
You don’t have to worry about the interest rates as we’re simply focusing on the balance owed.
Find out what the minimum payment amount is for each debt. Then, put this on the list as well. Make sure you pay at least that amount.
You’ll likely split this payment up throughout the month. You can make either bimonthly or weekly payments.
But for now, just record what the minimum payments are so you don’t incur fees for not paying the correct amount.
Use specific income streams, or saving strategies, to pay down a specific student loan or credit card debt.
For example, every time you go to the grocery store and use a coupon, or make a purchase online and use a discount code, immediately set aside those savings to be allocated towards Loan #1’s debt balance.
Then, dedicate a weekend job to pay for Loan #2. Afterward, put all your birthday money and other “found money” throughout the year to pay for Loan #3. And so on.
Continue snowflaking small payments onto your debts whenever you save money on a purchase or receive income from freelance work.
In addition, dedicate any extra money at the end of every week to a specific debt. Even if it’s just an extra $10 or $20.
Just make sure all of these amounts add up to at least your minimum payment due on that account every month.
Advantages of Debt Snowflaking
More budget-friendly debt payments
Since debt snowflaking is all about micro-sized debt payments, it’s a bit easier on your monthly budget.
You don’t have to worry about coming up with hundreds of dollars to go towards debt. But instead, can focus on small amounts every week or every two weeks.
This is one of the best student loan repayment options for freelancers or anyone with an irregular income.
Avoid debt payoff fatigue
One of the great things about this method is that you’re less likely to experience debt fatigue.
You’ll be making small but consistent positive changes throughout the course of paying off your debt. This makes the process seem a bit easier and doable.
When looking at a large amount of debt, you need a strategy that will feel easily obtainable. Not another plan that’s bound to fail.
Financial and psychological benefits
You’ll encounter both financial and psychological benefits early on in your debt payoff plan.
Why? Because it speeds up your debt payment momentum while boosting your confidence with small but consistent wins.
You’re also taking more frequent action towards your debt, thus creating more conscious money and spending habits.
Disadvantages of Debt Snowflaking
May possibly underpay your balance
Since this method requires micro-sized payments towards your debt, even $15 or $25 each time, it’s easy to underpay the minimum balance due on your loan.
However, this can lead to underpayment charges and other penalties fees if you’re not on top of the balance.
That’s why it’s important to list out the minimum balance for each account and divide that by the number of payments you feel you can easily make each month.
Lots of transactions
Debt snowflaking is one of those student loan repayment options that comes with a lot more transactions and payments from your bank account to different debts.
It’s a good idea to sign up for free online banking where you can set up regular payments to your loans automatically. This will eliminate the headache of having to keep all your payments organized, and from being overwhelmed with so many transactions.
Number of payment limitations
Before setting up multiple transactions to and from your checking account, verify with your bank to see if there are any transaction limitations.
Some financial institutions and lenders have a cap on the number of transactions or payments you can make every month. So if you’re setting up 5-8 micro-sized payments every month, you may go over this limit and incur transaction fees.
Is debt snowflaking right for you?
It’s important to weigh out all of the advantages and disadvantages of the debt snowflaking method so you can use it to it’s fullest potential.
When choosing among various student loan repayment options, take into consideration all the possibilities. Like with all student loan repayment options, there are pros and cons. So take your time to fully understand them and then make the best-informed decision.
Never hesitate to experiment with different methods until you find the one that really works for your situation. And if micropayments sound appealing to your budget, then debt snowflaking may be just the method for you.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|