I’ve Paid For This Twice Already…

Archive for the ‘snowflake’ Category

I’ve talked before about the attitude shifts that I’ve gone through in my quest to become debt free. The frugality by necessity, learning to budget and to assign every dollar a job, and losing my all or nothing attitude. But one of the things I haven’t really talked about is the shift from paying what I could “afford”, or basically, as little as I could to just get by, to paying as much as I possibly can. It really was an important transition in mindset when dealing with my debt that happened so gradually that I didn’t even realize it.

When I first started paying off my debt and stopped using credit card convenience checks to bail me out of jams, I started paying slightly more than my minimum payment. And I mean slightly. My minimum payment was $199 and I paid $200. This did actually work, every month my minimum went down a tiny bit, and I kept paying $200 every month.

This was a good thing. But it wasn’t quite good enough. I was paying more than the minimum, but I wasn’t paying as much as I possibly could. I basically treated the credit card debt like a monthly bill and adjusted for $200 in my monthly spending. It became predictable and stable and yes, it was better than paying just the minimum, but I never changed it. Not for more than two years. Our financial situation slowly changed for the better as my spouse moved up and got raises and I *talked* about how we should pay more to the credit card and get it gone, and once in a while I would pay a little bit more, but I really didn’t do it with any consistency or commitment. The credit card was just a $200 bill I paid every month.

So, last January or so I finally started making a more thoughtful and concerted commitment to getting out of debt once and for all. And one of the things that changed was that I started the process of snowflaking. At first, every time I saved money on something or spent less than I expected on something,I made an extra little payment to the credit card equal to those savings. When my son didn’t outgrow his shoes as fast as I expected, I snowflaked the cost of new shoes to my credit card. When I got a little money from taking surveys, I snowflaked money to the credit card.

And then I expanded this. I started paying extra to the credit card every time I bought something impulsive. If I bought something impulsively (with cash) for $10, I snowflaked $10 to debt as well. For if I could afford to waste my money frittering it away on a bunch of random stuff, surely I could afford to pay down my debt equally. And the credit card kept shrinking. Little by little, it built up momentum.

Enter the budget. Budgeting made it clear that not only could I “afford” to pay more to debt each month, but that I needed to if I ever wanted to get out of the living paycheck to paycheck cycle we are in. And that is where the true financial revolution picked up steam. Not only was I making small extra payments to debt when I earned extra income, I was also taking my “surplus” money at the end of each month and applying that directly to debt. And the snowflakes have become a snowball. It was a gradual process but truly, over the course of steadily paying down my credit card and other debts, my mindset went from “This is what I can afford to pay every month” to “Where can I find more to pay every month”.

And that change in and of itself has made everything else fall into place. And I didn’t even notice it happening.

What change in your financial behavior happened so gradually you didn’t realize it was happening, but you wouldn’t do without now?

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I have had several questions lately about snowflaking - what is it, why do I do it, can we see examples of it - so I thought I would write a quick primer answering those questions and more.

Snowflaking is a spinoff of the Snowball approach to debt reduction popularized by Dave Ramsey. With the Debt Snowball method, you figure out what amount you can pay to debt every month, and then you keep paying that amount, even as your debts shrink and your minimums get smaller. To implement it, in a nutshell, make a list of all your debts, order them from either smallest to largest or highest interest to lowest interest (that is a debate in itself), and you focus all extra money above the minimum payments on a single debt (either the smallest total or the highest interest, I use interest order). As you eliminate debts, you apply the payment you were making to that debt to the next debt in line until the snowballing effect of decreasing minimums and increasing amounts applied to particular debts eliminates all the debts on your list.

Well, what are snowballs made of? Snowflakes! I have a set amount I pay to debt without fail every month that is above my minimum payment due (about $800). On top of that, I also try to collect up little bits of money wherever I can and I apply those as well to my top priority debt as immediately as possible. I take surveys online, I sell possessions on craigslist and ebay, I have yard sales, and any money I get from these endeavors goes directly to my debt. I also keep a very strict accounting of all the money that comes in every month and what I spend and everything left over at the end of the month not earmarked for future expenses also goes directly to debt. These are my snowflakes. I have averaged over $200 extra going to pay down my credit card debt every month due to these snowflaking efforts.

Many small snowflakes make a snowball, and no amount is too small for me to snowflake. I used to pay my credit card directly every time I collected a snowflake through their online interface, but now that I have moved my credit card debt to another card with a 0% interest offer, I collect the snowflakes and pay them once per week (I am limited to the number of payments I can make to this card a month). If you are able to and your debt is not at 0% interest, I highly recommend the “pay snowflakes immediately” method. The faster your balance is reduced, the less interest you will accrue.

So, that is my snowflaking method. Small efforts matter, and many little things can add up to a huge snowstorm.  I use it because of anything I’ve tried, this has kept me the most focused and deliberate about debt reduction and eliminated debt the fastest. I cannot take credit for the idea or the implementation, many many other personal finance gurus and bloggers alike have used this method before me, and I first read about it on an iVillage Debt Support message board. I am just a subscriber to it. Maybe someday I should read some Dave Ramsey and learn from the granddaddy of the snowball himself.

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My statement finally posted for my Capital One card. The current balance (basically the interest accrued before I transferred the balance to the Citicard) was $28.13. Since I have $37.10 in snowflaking money already in my bank account waiting for me to use it, I zapped off a payment of the entire $28.13 immediately. Which means I still have $8.87 left to snowflake to the Citicard.

My Capital One card… is done. Balance $0.00, which is where it will stay for the foreseeable future. I know I didn’t “pay it off” in the strictest sense since it was a balance transfer, but it is still progress and it still feels good. Let the interest-fee accelerated paydown begin! As soon as I have my ebay profits figured out I’ll be sending off a combined snowflake. But that topic’s for another post….

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We had the yard sale yesterday, and there were good and bad things along with it. The good included us actually figuring out a ton of stuff we do not want or need, and getting it all organized and out to sell (including, yes, some of the endless toys my kids have). The bad included 50 degree weather in which hardly anyone wants to go out to yard sales in.

So, we ended up only making $24. Not a great haul for a day’s work by any means, but at least it wasn’t $0, which by 10am I was starting to fear. It did warm up to a balmy 55 degrees by 11am and we had a few customers between then and 2pm. The majority of what sold this time was outgrown clothes from my kids, and a few VHS movies.

Now I need to decide what to do with all the stuff now stacked on one side of my garage. I am going to get on the waiting list Monday for a consignment sale this spring, and I also may take a bunch of the clothes to Once Upon a Child and see what they’ll buy. They pay pretty poorly but sometimes it is just about purging the stuff. The rest of it? I’ll relist some of it on craigslist, and hopefully finally try the shoes on Ebay. I also need to do some searches for online places that buy old video games. And maybe just donate or throw out some of it. That’d be a step in a positive direction against accumulation… if I can do it. I have donated a lot of stuff in the past to Goodwill when we lived in an apartment and couldn’t have yard sales, but I’ve found it harder to do so since we moved because I theoretically could sell it now.

I made my first snowflake payment to Citicard, once I’d come back from grocery shopping I logged in and paid them $24. I can make three more online payments of $5 or more before the end of September…. better get cracking on those snowflake generators! Heh.

~J

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Day 4 of NCN’s 33 Days and 33 Ways to Reduce Debt Challenge is about Extra Payments Extra Deposits. Basically it boils down to making more than one payment a month, be it to your savings account or snowflaking to debt.

Any of the regular (or even casual) readers of this blog know that I am a HUGE fan and practitioner of the mini payment concept. As *soon* as I get money that is earmarked for snowflaking (surveys, selling things, unexpected gifts) off it goes to the credit card. The very moment it hits my bank account it is bounced off to the credit card. Very very often if one was to look at my bank statement online there will be what I call matching payments. There will be a deposit for an amount (like $10.69) then the very next line is an online payment to Capital One for the exact same amount. This will have to be altered slightly as I change to Citibank that only allows 4 payments per billing cycle, but I aim to make it a weekly event instead of an instant event with a similar effect.

To illustrate this in action and the power of making these mini payments, I’ll dissect my last billing cycle with Capital One . My minimum payment due was $117. I made one large payment, that included my $117 minimum payment, of $323.01. So $206.01 of that was over and above the minimum. But that’s not all. In addition to that snowflake, I made payments in the amounts of $55.54, $23.62, $4.28, $3.00, and $12.00 over the course of the billing cycle for a grand total in payments of $421.45, the total amount over the minimum being $304.45. Without making those extra mini-payments, I would have missed out on reducing my principal by close to $100. That’s a lot of money to me! I could have saved them all up for one big snowflake but something might have happened to make me spend some of it before it got to the credit card. You may think that it isn’t worth it to make a $2 or a $4 payment but it really is. Every little bit adds up.

All these extra instantaneous mini payments are really helping me get out of debt faster than I ever thought possible. Seeing my debt total creep downwards really keeps me focused and motivated. I recommend everyone try it! I like the big payments too of course but I like the multiple mini concept as well. I intend to employ a similar tactic when saving is my primary goal, and I hope I get great results!

~J

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