Why You Should Avoid the Debt Snowball

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I first found out about the debt snowball technique from Dave's Ramsey's The Total Money Makeover book.

In fact, I've implemented the debt snowball multiple times. Someone looking at my life might think that I love getting into and out of debt with how many times I repeated the process.

Over the last few years, when we decided to get rid of our consumer debt for good, I decided to approach our debt differently. Whatever we were doing before wasn't working, and we didn't want our future to be a repeat of our past.

What is the Debt Snowball?

The debt snowball, from my understanding, became famous from Dave Ramsey's book The Total Money Makeover.

The idea is simple: you pay off your debts from smallest to largest until the last debt is paid off.

The debt that is at the top of the list gets the largest payment, while the rest gets the minimum monthly amount owed. Once you start paying off debts, your “snowball” will build so that you can make larger payments as you go along the process.

By the time you reach your last debt, with the largest balance, you will be able to focus the largest amount in paying down that debt as quickly as possible.

Benefits Most Stated for the Debt Snowball

The often stated benefit of the debt snowball is that it focuses on “behavior modification”. Instead of seeing larger balances go down, you can pay off more debt balances faster.

That way, you see more “progress” faster, and it can help you to keep motivated on your debt free journey.

“The problem with your money is not your math. It’s the person in the mirror.” is a quote from a debt snowball page on the Dave Ramsey site. But the question I have is how does the debt snowball change the person in the mirror?

If getting debt free is the primary goal, then I agree with this statement. I think it is definitely part of the journey, but it is not the destination. I'll dive deeper into this idea below.

Focusing on the Wrong Reasons

The issue I have with the debt snowball is that it focuses on your feelings. You are trying to get smaller “wins” instead of looking at the big picture, and ultimately what the debt snowball is going to cost you (which is more time and money).

But for most of us, isn't our “feelings” what got us into massive credit card debt in the first place?

Screw your feelings. Learn to act outside of how you feel. If you don't learn how to do this, you are going to do what I did; continue to get into and out of debt.

Getting credit card debt free is not the goal in itself. It's figuring out why the debt is there and learning why you are spending more than you make. That way, you prevent the past from going on repeat, and you set yourself up to tackle the next destination on your path to financial independence.

It's about learning how to make smart financial decisions, even when it isn't what you feel like doing. Sacrificing the temporary satisfaction for things that are more permanent and valuable.

The Debt Snowball Goes Against Math

In 2018, we paid over $5,500 in credit card and line of credit interest charges. That's a massive sum of money.

The amount you pay on credit card interest is money directly out of your pocket. If you don't pay off your balance, you will end up paying more on interest the next month. It's the power of compound interest working against you.

The smart way to handle debt is to pay off your credit cards or loans that have the highest interest charges.

Every time you pay down a balance, you are saving money you can use to pay down your debts. This process ultimately will allow you to get out of debt faster and saves on interest. If you have a tremendous amount of debt, this could also end up saving you a ton of money.

In our case, there were a few balances that we could pay off in a month that would help make budgeting easier. We decided to handle those right away, even though they didn't have the highest interest rate charges. But anything larger than that, we focused on paying off the cards with the highest interest fees first.

Does that mean that we didn't pay off full balances as quickly? Yes. But it also means we reduced the length of time it took to pay off the debts. To me, the “good feelings” of paying off balances earlier is not worth more time and money.

Does the Debt Snowball “really” change your behavior?

What behavior is changing when you utilize the debt snowball?

I think what is meant is that you are preventing yourself from going into more debt by staying on track. That in itself is good, but it doesn't focus on the reason behind the behavior.

If you spend multiple years getting out of credit card debt, only to repeat the process, what good is the debt snowball?

From what I can tell, the only behavior that is changed by the debt snowball is in the way you are tackling your debt. And by implementing the debt snowball, you are guaranteed to have the debt longer and pay more on interest. Unless of course your debts just happen to have the highest interest from the smallest balance to the largest.

When faced with massive credit card debt, it's hard to not focus on the debt

I've been in debt so many times the last 15+ years that it seems my life up to this point has been all about getting out of debt.

“Wouldn't it be great not to have any debt?” is what kept on coming to mind.

But life is more than just getting debt free. It's about getting to a point where having to make money isn't holding you back from doing what you want to do with your time. That is the ultimate goal. Credit card debt gets in the way of that goal.

It's about learning to use money in ways that add to your life, and not take from it. That's going to look different for everyone, but in all cases getting debt free is only a destination in your journey.

It's my focus on getting debt free and not the reasons behind my spending that I found myself in the death cycle of debt. I would quickly get passionate about paying off our debts, and when that feeling faded, my old spending habits would resurface.

Passion is Not the Problem

Being passionate about an idea is not a bad thing. But what is more important is how this passion relates to your long-term goals.

We are in a transitional stage where we are just about finished re-building our emergency fund (which we had to deplete for a massive tax bill this year). We will also save to replace our roof, get caught up on the taxes we will owe for this year, and invest money in expanding the salon. So our current goal has moved from getting debt free outside of our house (which we achieved) to creating a solid financial foundation to build our net-worth.

At times it can feel like we are always feeling stressed out in trying to push towards something. But for each step we make towards our long-term goals of financial independence, the more we will experience the fruit of our efforts.

I'm not exactly sure how this year is going to play out. But if we can hit most of our goals, next year is going to be about increasing our net worth directly. Does that make what we are doing this year less important? Or is that more important than getting debt free? No! They all are necessary and essential in the grand scheme of things.

To help me process this idea, this is how I'm starting to look at it:

  • Build and maintain our passion for the current short-term goal
  • Be cognitive of our long-term goals
  • Think about the progress we've made up to this point
  • Reflect on how it will feel to reach each destination on the journey
  • Think about what we truly want out of life, and prioritize those things above everything

Time is More Important Than Feelings

One of the most significant negatives of being in debt is that you are losing time that your money could grow and earn money on its' own. You are spending future income.

Instead of increasing your net worth, you are taking it in the opposite direction. To reverse the process, you have to get that debt back to $0, so you can start building positive net worth.

Paying off debt is grueling, and at times it can feel like you are fighting a losing battle. But the fight is necessary.

The faster you can turn things around, the quicker you can focus on things that increase your net worth.

Implementing the Debt Snowball is Not Stupid

If you are paying off debt, and are thinking about how the debt got there, I'm not going to hold this decision against you. Because any time credit card debt is paid off, is a great thing.

My goal with this article is to challenge the idea that the debt snowball is a magical pill that is going to solve your debt problem. The problem is usually much larger than the balances on your credit cards.

And the debt snowball comes with an extra cost: time. It is going to take you longer to pay off your debts than if you focused on the highest interest rate cards first.

The most expensive aspect of having credit card debt is how much time it is taking from your financial life. The more time you can get back, the faster you can arrive at each destination in your financial journey. Use how much you hate your debt as motivation to get it paid off. Your future self will thank you.

Motivation Problem

This article from Forbes compares the two debt payoff strategies. The general finding was that for most people, they had an easier time sticking to the debt payoff plan when they focused on the smallest balances first.

For most people who have accrued massive amounts of debt, this makes sense. Most of them built up enormous credit cards debts based on emotion, so it makes sense that emotion would play a factor in motivating them to pay off or not pay off their balances.

If you are in a situation where you have a ton of debts to pay off; maybe these are from student loans, lines of credit, and credit cards. And you are looking at over 4-5 years to pay off these debts. In that case, given that timeline and the amount of debt, you might need to implement the debt snowball (at least partially). That's an enormous amount of time for anyone to stick with any plan.

Or maybe you look at the numbers, and in your scenario, the debt snowball isn't going to cost you that much in additional interest charges or time. That might be a great reason to go with the debt snowball.

In any case, thinking about what is going on behind your debt, and how you can prevent the same scenario from happening in the future, is the most important thing about your debt payoff strategy.

On a general level, we (as humans) have a massive consumer debt problem, and it is only going to get worst. Let's talk about the core issues behind the debt, and figure out how we can live our best lives to achieve our goals.

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