Beyond the Debt Snowball: Other ways to pay off debt (and are they worth it?)

I look at some non-traditional methods of paying off debt to see if they are any better than the Debt Snowball method.

The problem: you have multiple debts, all with varying amounts, interest rates, and payback timelines. Some are secured (like a mortgage) and some are unsecured (like credit card).

The question: how do you build a plan to pay your debts off ?

I have long believed in the Debt Snowball method, which states that you pay off your debts from smallest to largest, regardless of interest rate.

So if you have a $3,000 credit card debt, a $10,000 car loan, and $20,000 in student loans, you pay them off in that order, paying extra on only one at a time.

There are also those who believe in the Debt Avalanche method, which states that you pay off your debts from highest interest rate to lowest interest rate, regardless of the size.

So if your credit card debt is 12%, your car loan is 2% and your student loans are 5%, you pay off the credit card followed by the student loans and then the car loan.

Now, there is room for flexibility here. If two debts are similar in size, but the slightly smaller one has a huge APR, then maybe that makes more sense to tackle that first.

And for those who worry that the Debt Snowball isn’t the most financially optimal (which is true), the differences usually aren’t that great, so the emotional benefits you get from the Debt Snowball are more important. (I made a video about this.)

So all good, and we’re done, right?

Well, I thought so, until I read a recent report which suggested two new (to me) methods of paying off debt.

What? New methods? Have we invented new mathematics or something while I wasn’t looking?

I’ve not thought about these methods before, so let’s discuss them each in turn.

Debt Landslide method

The Debt Landslide method suggests that you pay off your debts from newest to oldest account.

The idea here is that because some credit scoring models give greater weight to more recent activity, you will make more of an impact on your credit score if you affect your more recent debts.

I should note that when this method is referring to date, it’s not the date the the debt was accrued, but the date that account was opened. So a credit card you got back in college but haven’t used until recently would still count as an “older” account.

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My take on the Debt Landslide method

This method appears to forget why you’re paying off debt in the first place.

You pay off debt so that you can maximize your wealth building opportunities and minimize the drag on your earnings.

Every time you pay off an 8% account, you’re in effect earning 8% on that money (because you’re no longer paying 8% away). The more debt you pay off, the more money you have to devote toward other purposes.

But this method appears to assume that your purpose is to, well, get more debt.

I have long said, rather controversially, that you should ignore your credit score, except insofar as there are errors on your credit report that lead your score to be erroneously lower.

If you pay your bills on time, consistently, and don’t take on too much debt, your credit score will take care of itself over time.

Yes, your credit score is unfairly used in a lot of places in life where it shouldn’t be (as in, to determine your worthiness when renting an apartment, for example). But most of the time, you don’t need to even care about your credit score.

And the fear of your credit score (or pistotikophobia, as I’ve dubbed it) is a condition you want to manage.

So the idea of paying off debt so as to maximize your credit score seems to have its priorities in the very wrong place.

Result: Avoid this.

Debt Cascade method

The Debt Cascade method suggests that you pay off your debts based on only your minimum payments.

This method is for those who can’t pay anything more than the minimum payments on all their debts. The idea is that as you pay your minimums, your minimums will eventually decrease (since they are usually calculated to be a percentage of your balance). Once that amount decreases, you will have more money to devote to that debt or others.

My take on the Debt Cascade “method”

This isn’t really a debt payoff method, as it is a coping mechanism for extreme financial distress.

It’s basically saying, pay the minimums right now, and when the minimums go down, use that extra money for whichever other payoff method you like (Snowball, Avalanche, etc.)

But that’s just telling you to pick another method, and keep paying minimums until you have extra money to throw at the debt.

For those who feel like they have literally no extra money to pay down debt, that is surely a scary situation to be in.

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What I would recommend for those who feel in this situation is to track your expenses for a whole month, and see if there is any way for you to take more intentional control over your spending. I bet you you could.

Now, if you’re in an emergency situation (lost job, medical crisis, etc.) then it’s not the right time to be paying down debt anyway. You don’t want to pay down debt when you’re in an emergency; you have more important issues to deal with.

I believe that most people can find some wiggle room, eventually. Regardless, you still want to pick a payoff method. This isn’t really that.

Result: Not really a payoff method.

Choose your own method

I’m all for flexibility on your debt payoff plan. You want to choose the plan that’s going to work for you.

But some of this starts to sound a little contrived. I mean, what’s next, a Debt Alphabetization method, where you pay off debts in alphabetical order? And then, will there be arguments about whether it’s better to go in reverse alphabetical order?

I want you to find a plan that strikes the best possible balance between maximum impact (speed of payoff) and maximum motivation. For most, that’s the Debt Snowball.

Then again, I did use the Debt Blunderbuss method when I paid off my last student loan. So maybe there is room for some more options.

Regardless: pick your method, and get started. The sooner you start, the sooner you can be debt free and feel more financially secure. Then you can use that money for something much better.

2 Comments

  1. Todd Christensen

    I’m so excited to see you reviewed our Landslide and Cascade debt repayment methods. The world has for too long been snowblind to various debt elimination methods. While the Avalanche may only seem to save someone one or two month’s worth of payments, those could easily add up to hundreds or even a couple thousand dollars.
    I agree that the naming of debt repayment methods can seem trite, but such names can actually help debtors who are so taken with celebrity talk radio that they don’t know there are options beyond the snowball.
    The Landslide is actually based on FICO scoring factor realities. I’ll respectfully disagree with the statement that the Landslide’s purpose is about getting into more debt, hopefully adding a nuance to it. Yes, the idea is to improve your credit in order to qualify for a mortgage for those ready to stop throwing money out the rent window.
    Credit is not the same thing as debt, despite what some popular podcasters might suggest. The Landslide is actually ideal for an individual or household who is considering the purchase of a home in the next 6-12 months and wants to rebuild their credit while also making good headway on their debt elimination. It doesn’t always make financial sense to wait until you are completely consumer debt-free before you trade your rent for a mortgage.
    However, if you need to add 50 or 100 points as quickly as possible to your credit score while paying off debt, then the Landslide is the way to go. FICO weighs your activity on newer accounts more than it does activity on your older accounts. 55 of FICO’s 132 NexGen (the basis for FICO’s popular 8 model) scoring factors focus specifically on recent activity, so the Landslide is not a trivial contrivance.
    I don’t have a problem with the Snowball so long as we’re not married to it and snowblinded by it when other options can make the most sense to your specific situation. I still recommend it for anyone who might not yet have the motivation sufficient to stick with another, more purpose-driven method.
    Thanks again for reviewing these ideas. Hopefully, they can help those in situations best suited for their purposes.

    • Mike Pumphrey

      Hi Todd. Thanks so much for stopping by, and I very much appreciate your detailed analysis of the various debt snowball methods.

      Ultimately, the method that’s best for someone is the one that works for them, so if these methods help people get out of debt, then that’s good enough for me!

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