Cool Tool: The Snowball Calculator

by Alex Stenback on September 29, 2006

Ever heard of the "snowball method" to paying off debt?  Niether had we (though the concept was familiar, just not the catchy moniker) until we ran across this post over at lifehacker.  What is it, this snowballing?

Snowballing is all about paying your debts in the correct order.
Generally speaking you should attempt to pay off the debts with the
highest interest rate first.

Which makes perfect sense.  Pay off your high cost debts first while making minimum payments on all others.  Once the first debt is paid, apply the savings to the next debt on the list.  Rinse, repeat.  Problem is, this can be challenging to map out for many people, which is where the calculator comes in.  You simply type in some specifics about each debt you’d like to pay off, and the snowball calculator kicks out a nifty little printable schedule that you can follow. 

Good stuff, with one caveat: This is a GREAT tool for renters and aspiring homeowners, but if you own a home, you’ll be debt free quicker and with less cost (contrary to what the snowball calculator says) using a small second mortgage to consolidate debt and apply the savings towards principal reduction [see the speadsheets to back this claim, after the jump]
ยท Snowball Calculator [ via lifehacker]

First, The snow ball example, where we used a monthly debt reduction payment of $240.00.  The calculator says:

It will take you 39 months to pay off these debts if you snowball correctly. During that time, you’ll pay $1,233.00 in interest. If
you paid the same amount per month, but changed the order in which you
paid your debts so you weren’t paying the highest interest rates first,
it would cost you an additional $152.00 in interest.

See the accompanying schedule (click pic to make big):


Now let’s look at using a second mortgage for consolidation.  Using the same $240.00 pre-payment amount, will have one debt free in 30 months.  Behold (again, click image to make big):


See how that works? Nine months of interest saved, and a nice little tax writeoff to boot.

{ 8 comments… read them below or add one }

David Porter September 29, 2006 at 11:21 am

Nice Post!

Erica September 30, 2006 at 12:34 am

I like lifehacker (and, too), but I can’t keep up with the volume of posts.

This is the neatest, simplest version of the snowball calculator I’ve seen. I’ve seen all sorts of spreadsheets and stuff, but if someone’s just looking for a clue as to where to start, this is perfect.

Teresa Boardman September 30, 2006 at 9:14 am

Nice calculator. I am going to have to see you so I can accumulate some debt. I have no second mortgage, credit card debt, or even a car loan. I owe so little on my home it is pitifull! I am really feeling left out of the 2000′s. :)

Sarah Reiter October 3, 2006 at 10:07 pm

Great tool, like the calculater. cool tool will have to refer a ton of my clients to it, thanks.

I’m a real estate virtual assistant and this is a great tool for some of my clients and a lot of my realitor clients

A day in the life of a Loan Advisor October 29, 2006 at 8:46 am

Great tool many thanks for pointing it out.

snoballer December 7, 2006 at 5:02 pm

You can always tell the real estate folks. They’re the ones who can’t spell worth beans, yet they dip their hands into everybody’s pockets.

snoballer December 7, 2006 at 5:02 pm

You can always tell the real estate folks. They’re the ones who can’t spell worth beans, yet they dip their hands into everybody’s pockets.

bravoo January 5, 2007 at 12:43 am

great tool, it’s useful for many borrowers to paying off their debts..

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