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# Snowflaking, defined.

August 7th, 2006 at 01:04 pm

Snowflaking, as I define it, is a process where little bits of "whatever" can accumulate to make a great impact. Like how snowflakes (little) make a snowball (bigger), which can get even bigger still.

I've seen this term used in talking about debt reduction: little amounts of surplus money go towards paying a bill, which causes it to be repaid sooner.

For example:

Sears Card = 600 w/minimum payment = 50, payoff =12 months
Car note = 2,000 w/min payment = 200, payoff =12 months
Visa = 1600 w/minimum payment = 100, payoff =16 months

But if you could squeeze out an extra 25/month, you could repay the first one in 3 months and do this:

Sears = 500-75 for 8 months = 0
Car Note = 2000-200 for 8 months = 400
Visa = 1600-100 for 8 months = 800

and in month 9

Car note = 400-275 (the 75 from Sears)=175
Visa = 800-200=600

Month 10

Car Note =175-175
Visa = 600-200-100 (from the car note) = 300

and in month 11

Visa = 300-300 = 0. So you get done 5 months early.

In cases where the debt doesn't accumulate interest, the math is very straighforward: whittle away at the smallest first and when it's done use the freed up \$\$ from the first debt to take chunks from the next one.

But often, debts aren't that simple. In this case the interest and the principal has to be factored in, and it may not be the best strategy to go from smallest-biggest or even highest interest first. I guess an easy way to ballpark it is to not snowflake the low balance, no interest debts and attack the smaller of the interest-bearing ones first.

I actually use a calculator to figure this out, because the difference in payment order can add or delete several months to the repayment time. This is partially because of the interest, but also because my snowflake amount may vary each month.

Here's the link to the calculator:
snowball. I like the basic one. If it works for you, give the dude a tip -- his spreadsheet can really save a lot of headaches.

And I got the link from this amazing blog:

It's your money. He's got other cool stuff too.

If I were better at computer programming (which is to say, if I could do it at all) I would write a program that would just do it for you. Maybe someone out there with higher brain wattage can tackle this job?

### 2 Responses to “Snowflaking, defined.”

1. Bookie Says:

IYM is a great site. I've read through most of the articles, and I enjoy his blog as well.

If you have a computer, he has some nifty spreadsheets that include amortization schedules you can play around with and even customize.

They are great for "What-If" exercises, playing around with different scenarios.

2. PRICEPLUS Says:

Great sites. I especially like IYM. Hey, you are doing great so keep it up! I love the "Snowflaking" concept!

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