It was two years ago now that I decided to try this thing called the debt snowball for paying back loans. The main idea for that is that you ignore interest rates and pay back the smallest loan first. From there, rather than keeping the money you`d been paying to the smallest loan once it`s gone, you add that payment to the payment you`re already making on the next smallest loan. The idea behind it is that by the time you hit the biggest loans, the monthly payments will be quite substantial. So like a snowball, it starts out slow, but should end up faster. In theory.
Does it work? It seems to be. Is it quick? Not by a long shot.
I started with the snowball method in January of 2017. At the time, my total debt was at $102,202.69. And it had hovered around there for the entire time since I`d graduated, since I`d only really paid the minimums up to that point.
At the one year check in for the snowball method, January 2018, my total debt was at $101,688.02. I had paid over ten thousand dollars towards loans that year, and yet the debt had gone down by a measly $514. That`s depressing.
This year as well, I`ve paid over ten thousand dollars towards the loans. With help from my dad, closer to $12,000 has been paid towards the loans, rather than ten.
Has it made that much of a difference? Surprisingly, yes! (Though one other thing helped which I mention below)
Let`s take a look at the numbers:
Jan. 2017……………..Jan. 2018……………..Feb. 2019
My substafford loan………….$2426.82 → $2000.50 → $1266.77
My advantage loan……………$8448.15 → $7744.17 → $6147.09
My discover loan 1……………$9365.60 → $8893.40 → $3980.48
My discover loan 2……………$990.27 → $0 → $0
My consolidation loan………$37,286.97 → $38,514.96 → $40,120.94
Dad`s consolidation loan…$41,550.84 → $43,721.93 → $44,321.00
My discover card………………$2134.04 → $660.41 → $6.33
As you can see, in two years, I`ve only completely paid off one loan. And the credit card…I think you`d agree that having only $6 on the credit card pretty much counts as it being paid off (and for the record, I did send the payment in). Most of it looks pretty normal. I`ve been paying it off, the numbers are slowly going down…wait. What`s this?
Jan. 2017……………..Jan. 2018……………..Feb. 2019
My substafford loan………….$2426.82 → $2000.50 → $1266.77
My advantage loan……………$8448.15 → $7744.17 → $6147.09
My discover loan 1……………$9365.60 → $8893.40 → $3980.48
My discover loan 2……………$990.27 → $0 → $0
My consolidation loan………$37,286.97 → $38,514.96 → $40,120.94
Dad`s consolidation loan…$41,550.84 → $43,721.93 → $44,321.00
My discover card………………$2134.04 → $660.41 → $6.33
Those two loans…they`ve only gotten bigger each year, not smaller! I noticed this last year too…but somehow, the fact that in two years, between the two of them, that a little over $5,500 was added to my debt… it`s just… That`s roughly a quarter of what I`ve paid towards loans in that time! T-T
But it`s not all dark. Remember how I said that last year my entire debt only went down by $514? Well, this year, my entire debt went down by $5845. Five. Thousand. Dollars. Instead of five hundred. That`s a huge difference! And as I didn`t pay much more on my loans (though yes, this year I had help), the biggest difference I can see is that this past year, I didn`t have credit card debt after the first month or so.
Credit cards have the highest interest rates, so it kind of makes sense that the presence or lack of credit card debt makes that much of a difference. It is a good reason to be cautious of them…they`re nice and useful, but they do make a huge difference in your total debt if you have other loans and things you`re already paying off!
…which of course, only brings us back to the point that interest rates from loan companies is evil. As I said before, it really is the vampire of bills. Just an interest rate can make that much of a difference to your total debt. It`s something I had to learn the hard way, but I hope someone else who reads this might learn from my mistakes.
In conclusion, the debt snowball seems to slowly be working…let`s see what year three brings.
Total Debt after paying it for six years, (two of which were on the debt snowball method): $95,896.38