Living with credit, Protecting yourself

Confessions of a former debt ‘snowball’ addict

Julie Sherrier

A lot of time, money and energy go into figuring out why people make the wrong choices when paying off debts.

For example, when faced with multiple debts with varying interest rates, people tackle the debt using one of two strategies: paying the smallest debt off first (known as the infamous “snowball strategy“), or paying off the debts with the higher interest rates first (the more logical approach, which, if followed, gets you out of debt faster).
I’m ashamed to say that, for quite a number of years, if not decades, I was a snowballer.

I wasn’t always a personal finance editor, but I was educated enough to realize that higher interest debt is more expensive. But that didn’t stop me from doggedly pursuing the thrill of paying off as many small debts as I could first — no matter their interest rates — before I tackled any bigger ones.

The snowball method isn’t new, but giving it a name was genius. It combines instant gratification with achievement, and it appeals to the emotional side of debt rather than the rational.

But after writing and editing about the right and wrong ways to pay multiple debts — and after incurring some debt over several credit cards when I moved last winter — I thought it high time I paid off debt the smart way.

Let it be known that I’ve not been an ostrich when paying attention to the interest rates on my cards. I know what they are, but that still didn’t stop me from tackling the biggest debt last. But when actually writing down the balances of several cards and their corresponding APRs, I was a little shocked.

Case in point: Some of my largest purchases when I moved were a new refrigerator and a new washer/dryer. My washer was headed toward collapse after 20 years of use (when Maytag was actually manufactured by Maytag, not Whirlpool), my dryer didn’t dry and my refrigerator was going to die at the least opportune time (like right after a big grocery haul). I scoured the ads and ended up at an appliance sale at Lowe’s. Having always been a Home Depot customer, I didn’t have a Lowe’s credit card, so I opened one (yes, for the first-time discount).

The interest-free period for the card was 12 months, and I almost have the balance paid off already, but then the APR jumps to 24.99 percent! Might as well round that up to 25 percent. Geez. That’s the highest APR card in my wallet. So that balance is going first. And I don’t think I’ll be using the Lowe’s credit card for anything else.

Next, the Home Depot card. While not much better, the APR on that card is around 22 percent or 23 percent. Luckily, I paid what little I had charged on that card off this month.

So, I am left with my piddly-APR general use reward cards, whose rates are so much more reasonable than any retail card out there. Why I still use retail cards … well, I know why. It’s the incentives, like the frequent-use coupons, the first-time use discounts, the “no-interest” for 12 months teasers, etc.

But now that I’m applying a sense of economics to my debt paying strategy rather than paying by emotion, I’ll never fall prey to those come-ons again.

Of course, that’s not true, but then if we all approached our debts like economists, the card issuers would never make any money. You know they are banking on us to fall for the bells and whistles — until the bills come in. But I’m glad I’m finally practicing what I’m preaching.



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  • DavidL

    Julie! Don’t apologize for being a snowballer! Getting out of debt is as much (if not more) a psychological exercise as it is a pure math (interest rate)matter. It’s just a single decision to begin getting those credit cards paid off, but you have to keep that excitement and momentum going, and that is tough to do if your first card is the highest interest rate and it is $12,000 and at the same time you are writing out 6 or 7 other checks a month for all of those other cards for the months and months it takes to get JUST ONE paid off.
    Run a calculator on the savings using both methods and see what the real difference in savings could really be. If you continue the program with any car loans and your mortgage the difference in interest saved will be minimal, but the energy you get from getting the lower ones paid off bang bang bang is what most of us need to keep us going. I am with Dave Ramsey on this one…Good article.

  • As a Credit Counselor, I believe the “snowball” strategy is a good one. There are actually two issues in this blog. One is continuing to use credit cards and the other is the paying off of credit cards. Typically we do not save for the future “emergencies” that hit us. Instead…we open a new credit card and add to our debt burden. The better way would have been to have saved in those years of snowballing and the Lowe’s card would be a non issue (or opened, money saved and paid off within a few months). Not using (or opening cards) stops the cycle of having to use any kind of method to pay off credit card debt. In regards to snowballing, although the numbers do work out that the higher interest method will be paid off sooner, it is not by much. The emotional aspect of paying off a card is generally a greater reward and incentive to keep people motivated in continuing to pay off (and NOT use) their cards, especially if they are also saving at the same time. It is what I practice. Although not perfect, I have been able to pay off credit cards AND save for big ticket items paid for with cash AND set aside three months worth of income. It has taken me five years of trial, error and sacrifice but, it has been worth it to see each year, even in this economy, get a little financially better (less debt), snowball by snowball.

  • Julie Sherrier

    Thanks for your comments. I may not manage things perfectly (like planning ahead for appliance purchases — bravo to you!), but sometimes life happens when you least expect it and credit cards come in handy. My emergency fund was tapped for unexpected veterinary care, but knew I had money coming in from the sale of my house to afford the new appliances. I just had to buy them before the sale funded in order to have them installed in the new house on time (hence, the Lowe’s card, which saved me 10 percent on the purchase, was no-interest for 12 months AND the items were on sale). So I accrued no interest and had the bill paid off in two months. Living plastic-free is probably ideal, but if you use them without incurring interest (which I generally do, but fall off the wagon once in a while), they can offer a lot of flexibility.