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Does Debt Snowflake Actually Work?

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debt avalanche vs. debt snowball

Two of the most popular debt payoff strategies are debt snowball and debt avalanche. Debt snowball, popularized by Dave Ramsey, involves paying off your debts from the smallest to the largest balance. Debt avalanche involves paying off your debts from highest to lowest interest rate.

There’s another winter-related strategy you might want to consider if you’re looking to repay significant debt: debt snowflake. Ideally, this strategy should be used in conjunction with either of the above methods. It helps you save small, snowflake-sized amounts of money each day or week to put toward your debt.

Read on for everything you need to know about the debt snowflake strategy.

How the debt snowflake strategy works

The debt snowflake strategy involves saving in little ways each day and then putting those small savings toward your debt. Ideally, debt snowflake shouldn’t be used by itself, but rather with another debt repayment strategy.

Priya Malani, founding partner of Stash Wealth, a financial planning company, said she wouldn’t call debt snowflake a “method,” per se. “I would think of it more as a bonus or add-on strategy that works in conjunction with one of the main methods of debt paydown, [like the] snowball or avalanche,” she said.

So how does it work? It’s quite simple. Let’s say you bring your lunch one day instead of spending $8 on a salad. You can put that $8 toward your debt immediately by making a small payment online. Or you can keep track of your “snowflakes” and put them toward your debt at the end of the month.

There are many areas you can reassess in your daily life to find small savings. Consider the following ways to cut back:

  • Cancel old subscriptions. Malani said this can include everything from magazine and music subscriptions (like Spotify) to gym memberships and movie/TV subscriptions (like Hulu).
  • Sell old clothing and goods online. If you have old clothing, shoes or accessories sitting in your closet, consider selling them on Poshmark, eBay or through a Facebook buy/sell/trade group.
  • If you’re going out, do it during happy hour. Instead of spending $13 on a craft cocktail, find a bar that sells one for $6 as part of a happy hour special, Malani recommends.
  • Take uberPOOLS or Express POOLS whenever you can. UberPOOLS are significantly cheaper than normal Ubers, and Express Pools can be up to 50% cheaper than uberPOOLS. Malani also recommends taking public transportation whenever you can.
  • Skip the morning latte. Beverly Harzog, author of “The Debt Escape Plan,” said just because you’re budgeting with the snowflake strategy doesn’t mean you need to skip your latte every day. Instead of getting one six days a week, opt for once a week instead.
  • Skip convenience items at the grocery store. Pre-washed, pre-cut lettuce is going to run you a lot more than a head of iceberg, Harzog said. Skip convenience items such as this when shopping for your weekly groceries.
  • Have a low-key night at home. A night out with friends could run you $100 or even $200. Malani recommends having everyone over for a wine night or potluck instead to save a little cash.
  • Opt for cheaper entertainment. Instead of going to the movies or catching a live show every weekend, consider renting a movie and eating something at home. Just remember: That doesn’t mean you have to become a hermit. “Maybe go to a movie once a month instead of four times a month,” Harzog said.

Debt snowflake: Pros and cons

The debt snowflake strategy isn’t for everyone. Below, we’ve identified the top three pros and cons associated with the strategy.


  • It’s an easy way to make small changes. Some debt repayment strategies require quite a bit of planning, but the snowflake strategy is fairly simply. All you have to do is save $2, $5 or $10 every so often, and there isn’t much more to it.
  • There’s a psychological perk. Many people benefit from the small “wins” associated with the debt snowball method. The snowflake has a similar benefit. “The snowflake strategy reminds you that you are in control of decreasing your debt balance, which has great psychological benefits that help keep you motivated and empowered with your financial life,” Malani said.
  • It makes you more aware of your spending. It’s easy to get stuck in a pattern of less-than-stellar spending habits without realizing their damage. For example, a $4 latte each weekday might not seem like a lot until you realize that skipping it could save you about $100 a month. “I think [the debt snowflake] makes people stop and think about what they’re doing every single day,” Harzog said.


  • It requires serious organization. If you opt for the debt snowflake strategy, you have to make sure you’re organized. This means either grabbing your cellphone and making a transfer the minute you save money or keeping a list of all your savings to put toward your debt at the end of the month. Harzog recommends staying organized by setting up email or phone reminders to ensure you make your payments.
  • It doesn’t work well as a stand-alone strategy. Some people want a simple, streamlined solution for paying off their debt. If you’re concerned about balancing too many things, debt snowflake might not be for you, as it works best with another strategy such as debt snowball or debt avalanche.
  • You might lose motivation. The savings associated with the debt snowflake strategy are small. Malani said if you struggle to find these small savings, you might feel defeated and could lose your motivation to stay on track.

Debt snowflake makes a difference: Here’s how

Saving $5 here or $7 there might not seem like it will make a difference in your debt, especially if you have a large balance. But it does.

Let’s say you have $5,000 in credit card debt with a 15% interest rate and a minimum monthly payment of $100. You normally pay $200 per month toward your debt but are able to put an extra $100 toward it by using the snowflake strategy to cut out weekly lattes and other small expenses. Here’s how much of a difference that extra $100 a month can make:

StrategyTotal DebtMinimum PaymentMonthly PaymentInterest RateTime to Pay Off Debt Total Interest Paid
No snowflake$5,000$100$20015%31 months$1,033
Snowflake$5,000$100$30015%19 months$642

3 other debt repayment strategies to consider

Perhaps the debt snowflake, debt snowball and debt avalanche methods aren’t for you. Luckily, there are myriad ways to pay off debt. Below are three other strategies to consider.

Debt consolidation loan. One common way to pay off debt is through a debt consolidation loan. This involves combining all your debt and taking out a personal loan that will go toward the debt as one monthly payment.

Interest rates on debt consolidation loans are typically lower than interest rates on credit cards.

Balance transfer credit card. If your debt is credit card-related, you might want to consider a balance transfer credit card. These cards typically have introductory rates as low as 0%, which can allow you to repay your debt while saving on interest.

This strategy is only worthwhile if you’re certain you can repay your debt within the introductory rate grace period since the rate after that could be just as high or even higher than your previous rate.

Debt management. If you hold a significant amount of debt and have struggled for years to pay it off, you might benefit from credit counseling. Consider meeting with a nonprofit credit counselor who could help you come up with a debt management plan.

Besides helping you stay on track with a debt management plan, nonprofit credit counselors can teach you about good financial habits that help avoid getting into debt again.

Whichever strategy you choose doesn’t matter as long as you’re committed to becoming debt-free.

“The right method is the one that works for you — the one that keeps you motivated and going — because everyone has different personal circumstances,” Harzog said. “You have to be very honest with yourself. Take a close look at your budget and your cash flow, and just see what you can do and pick the right method for yourself.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Friedlander
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Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here


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Is Buying an Investment Property Right for You?

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Real estate has always been a popular strategy for building wealth. Beyond amassing equity in the house you live in, you could possibly turn a profit by purchasing investment properties and charging others rent. In an ideal situation, an investment property could rise in value while renters foot the bill for the mortgage and even repairs.The good news for investment-property owners is there is money to be made in being a landlord. A 2018 study by apartment search website RENTCafé found that millennials alone spend approximately $93,000 in rent by the time they’re 30.

However, buying an investment property isn’t as easy as purchasing a house you plan to live in yourself. Not only are the loan eligibility requirements stricter, but you’ll likely have to come up with more cash. If you’ve been thinking about purchasing your first investment property, here are some factors you should consider first.

You may pay higher interest rates. Lenders charge higher interest rates when they believe there is a higher risk that the borrower will default. Investment properties are considered riskier than buyer-occupied homes because lenders figure people are likely to try harder to pay the mortgage on the home they live in than they would for an investment property if times get tough. As a result, the interest rates are typically a point or more higher for investment properties, said Rick Bettencourt Jr., a mortgage professional based in Danvers, Mass., and board president for the National Association of Mortgage Brokers.

Interest rates on multi-unit dwellings tend to be the highest of all. “Buying an investment property that’s a multi-family unit is the riskiest type of home loan that you can get,” Bettencourt said. As with other types of home loans, the lower your credit score, the higher the interest rate you’ll pay. Rising interest rates, such as in the current environment, will also likely have an impact on the buyer’s borrowing power. As mortgage rates rise, investment properties may stay on the market for a longer period of time, Bettencourt said.

You may need a larger down payment. When you buy a house that you plan to live in, many lenders let you put down less than 20% as long as you pay mortgage insurance. However, mortgage insurance is not an option for borrowers who are buying investment properties. Borrowers will typically have to put down 20% in order to be approved for a loan — and to get the lowest rates, expect to put down 25%, Bettencourt said.

You’ll likely need more in cash reserves. Not only will you need to come up with the cash for the down payment, but lenders also typically require investment property buyers to have enough stashed away to cover several months of mortgage payments. A good rule of thumb is to have six months of mortgage payments, so if your mortgage payment is $2,000, you’ll need $12,000 Bettencourt said. Assets held in checking and savings accounts, CDs, mutual funds and retirement accounts can all count toward your reserves.

Rental income may be included in your debt-to-income (DTI) ratio. Lenders will consider how much income you have relative to debt when determining whether they’ll lend you money and how much you will qualify for. They want to know that despite current debt obligations, you have enough money coming in to pay the mortgage. When you buy a rental property, lenders not only consider your current income, but they consider how much money you could potentially make charging rent. That means they calculate a higher income for you than you currently have, and as a result, you could likely qualify for a more expensive rental property than a house you intended to live in.

Your credit rating may be more important. Because lenders consider investment property financing a riskier type of loan, they’re going to be looking a lot harder at your credit score when determining whether to lend you money. To get the best rates, many lenders will look for a minimum score of 720, but if you can get your score in the 740 to 760 range, that would be ideal, Bettencourt said.

You may incur other costs. Don’t just consider the costs of buying the property — also factor in whether you’ll be able to maintain it. Could you afford the costs of hiring contractors when you need repairs? Have you considered the costs of property maintenance and utilities?
“If the cost to maintain the property is going to be expensive, that will eat into any of your profits,” Bettencourt said. Also, consider whether you’ll be able to pay the mortgage if you’re between tenants for a long period.

Financing your investment property

Once you’ve weighed these factors and decided that an investment property is for you, the next step is determining how to finance it. Here are some options to think about.

Conventional loans. If you have a high credit score and assets, a conventional loan could be your best bet. Keep in mind that conventional lenders likely will have the strictest requirements. For example, Wells Fargo requires borrowers to have two years of property management experience in order to use potential rental income to help qualify for the loan.

Home equity loan or HELOC. Depending on how much equity you have in your principal residence, you may be able to leverage it to pay for an investment property. One reason this may be a good option: Home equity loans and home equity lines of credit, or HELOCs, typically come with lower interest rates than investment property loans because they don’t carry as much risk. However, there’s always the risk that if your investment property struggles and you can no longer afford the payments, you could end up losing your house as well.

Financing through the seller. In some cases, owner financing may be available. With such an agreement, you and the seller would decide on the terms of the loan and you’d make payments directly to the seller rather than going through a traditional lender. Without a lender, the requirements may be less stringent and there may be less paperwork involved. If you finance through the seller, know that the transaction might not be on your credit report unless the seller reports it to a credit reporting agency.

Loans from private lenders or investors. If you’re looking for a loan with more flexibility, you may be able to get it by finding a private lender or investor who is willing to underwrite your deal. They may be more willing to negotiate with you about the terms of the deal than a traditional lender. Some peer-to-peer lending networks bring together borrowers with potential investors for real estate projects.

FHA loans and VA loans. Many homebuyers find loans backed by the Federal Housing Administration and the U.S. Department of Veterans Affairs appealing because they allow you to put down less than 20% on a property. FHA loans allow you to put down as little as 3.5%, while VA loans can be taken out with no down payment. For the most part, you can’t use FHA or VA loans for purchasing an investment property because they are designated for owner-occupied homes. But there is an exception: If you buy a house with up to four units and live in one of them, you may be able to satisfy that requirement.

Buying your first investment property can get you started on building your own real estate empire. But like all investments, real estate comes with risks. The housing market could crash or you could be stuck paying the investment property’s mortgage between renters. Before you make such a major investment, it’s important to consider how you would handle a downturn in the housing market or other potential challenges. If you do decide that buying an investment property is for you, do your research and ensure that your financing strategy will benefit you in the long term.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Tamara Holmes
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Tamara Holmes is a writer at MagnifyMoney. You can email Tamara here


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Merchant Cash Advance: What You Need to Know Before Applying

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Small business cash advance

When you need cash personally, you probably try to steer clear of payday loans. These short-term loans are risky, providing small amounts of money at a high cost. The speed at which you could receive funds may be tempting, but the risk involved in taking out a payday loan should make you think twice before doing so.

On the business side, cash advance funds or merchant cash advances, present the same dilemma. Merchant cash advance companies hand over a set amount of money in exchange for a portion of your business’ future receivables, such as credit card sales. A cash advance gives you cash on hand almost immediately, but it can have long-term effects on your finances.

Although merchant cash advances represent less than 1 percent of the financing products available to small businesses, here’s how to feel prepared to make an informed decision when you consider taking this option.

What is a merchant cash advance?

Unlike an actual loan, a merchant cash advance typically doesn’t require collateral, a personal guarantee or liens. Cash advances also do not have a fixed payment schedule, whereas traditional loans do.

When you take on a merchant cash advance, the advance provider purchases a portion of your credit card sales or other receivables in exchange for a lump sum of money. Going forward, the cash advance provider receives a percentage of your daily sales until you pay off the debt. Because the repayment schedule is based on a percentage rather than a fixed amount, the cash advance provider receives a larger payment on days when your sales are high.

Business owners tend to use merchant cash advances to cover working capital needs, such as new equipment purchases, seasonal inventory, expansions or remodels, debt payoff or emergency expenses.

Cash advance providers may include a performance guarantee when you sign a contract. Generally, there is no obligation to repay a cash advance. That’s different from loans, which require various guarantees and have a promissory note of repayment to ensure borrowers pay back the funds. Companies use performance guarantees to give a cash advance the appearance of a loan and borrowers an added push to repay the debt. A performance guarantee would require you to agree not to take any action that would undermine your business performance, such as selling the business or filing for bankruptcy.

Repayment depends on the business continuing to receive credit card payments or other receivables, which means the obligation to repay the advance is conditional, exempting merchant cash advances from state usury laws. These laws regulate traditional loans that are unconditionally repayable and the laws usually put a cap on the rates that lenders can charge. Usury laws do not apply to merchant cash advances.

How a merchant cash advance works

After applying for a merchant cash advance, you could see funds in your bank account in a matter of hours or days after approval. Repayment starts automatically and could begin as early as the next day.

While some merchant cash advance companies specifically purchase your future credit card receivables, other companies may accept a range of receivables, Catherine Brennan, partner at Maryland-based law firm Hudson Cook, told MagnifyMoney. Instead of taking a portion of your daily credit card sales, a cash advance company may make a daily withdrawal from an account that holds your receivables. This type of funding is similar to revenue-based financing, in which a company purchases a percentage of your total revenue rather than just your receivables.

Several companies use the Automated Clearing House Network (ACH) to set up direct electronic transactions between bank accounts. Companies that use a fixed ACH program collect a set amount of money from your business checking account each day. Some merchant cash advance contracts allow you to adjust the company’s daily withdrawal if business temporarily slows down, Brennan said.

“One of the key benefits of this [feature] is it’s supposed to be based on what you generate,” Brennan said.

If the merchant cash advance provider wants to collect part of your credit card receivables, the company may require you to switch to a credit card processing system of their choice to collect money.

Because repayment is based on your daily credit card sales in this situation, the more card transactions your business does, the faster you pay off the advance. However, if sales are slow, you still have to fork over a portion of your daily transactions.

Cash advance companies use factor rates to determine the cost of the advance instead of annual percentage rate, or APR, which is used to calculate interest on traditional loans. A factor rate is written as a decimal figure rather than a percentage and is multiplied by your funding amount. For example, a $10,000 merchant cash advance with a factor rate of 1.25 would cost $2,500, and you would owe the company $12,500 in total. When shopping for a cash advance, look for the lowest factor rate, Brennan said.

The pros and cons of cash advance funding


  • Fast cash. The underwriting process for merchant cash advances is less involved than the process for traditional bank loans, which contributes to the speed at which you receive funds, Brennan said.
  • Lenient eligibility requirements. Cash advance companies often target business owners with poor credit who may not qualify for other types of funding. However, a reputable merchant cash advance provider will have criteria that customers must meet, Brennan said. Watch out for companies that don’t have any eligibility requirements.
  • No obligation to repay. A merchant cash advance contract obligates you to keep your business running so the company can continue collecting receivables, Brennan said. If the business fails despite your best efforts, you’re not on the hook for a cash advance.


  • High cost. Because the underwriting process is so quick, the cost of merchant cash advances is high, Brennan said. Underwriting typically puts your credit history under a microscope to reduce the risk for the lender. Without going through that process, cash advance companies don’t reduce any risk, which leads to higher prices.
  • Your debt could build. Because cash advances are expensive, some business owners end up taking out more than one advance to cover the costs of their current advances, which is known as “stacking.” Cash advance companies may include contractual provisions that prevent business owners from stacking, Brennan said.
  • Fluctuating payments. It could be difficult to forecast how much will be taken out of your sales each day, and it may be difficult to plan around the payments.
  • Deceptive marketing. Some cash advance companies are deceptive when advertising their products. It’s important to look for fees or penalties that are not disclosed up front, which could make the cash advance more expensive.

Merchant cash advance FAQs

When you sign a contract for a merchant cash advance, you agree to continue operating your business to the best of your ability to ensure the cash advance company will receive a portion of sales.

Many merchant cash advance companies approve businesses for funding within a few hours and funding is delivered the next day.

A merchant cash advance company may collect a fixed percentage of daily credit card transactions or make a pre-scheduled withdrawal from your business account for a bank-to-bank transfer.

You could typically use your merchant cash advance to cover any business expense.

Where to get a merchant cash advance

Merchant cash advance companies operate online, and both the application and underwriting processes are completed digitally.

Some companies are direct lenders, which means they directly supply the capital to your business. When working with a direct lender, the name of the capital provider on the application should be the same as the name on the contract for the cash advance. If you work with a company that is not a direct lender, the company may send the information from your application to several different funding companies, which may all pull your credit. When a potential lender checks your credit, it’s considered a hard credit pull. Multiple hard credit pulls in a short amount of time could bring down your credit score. A direct lender only pulls your credit once, making minimal impact on your score.

Merchant cash advances are also available from independent sales organizations, or ISOs, that act as brokers for cash advance providers, Brennan said. They may work with a variety of companies and be able to provide you with information on a range of products. However, ISOs generally rely on commission and may push you toward a product that isn’t suited for you and your business.

“As a merchant, buyer beware is a good frame of mind,” Brennan said.

Alternatives to merchant cash advances

If you’re uncomfortable with the premise of a merchant cash advance but need capital quickly, online business lenders can offer fast short-term funding that traditional banks are hesitant to provide, Brennan said. Here are a few alternatives to merchant cash advances:

Working capital loans

Working capital loans are short-term products used to cover day-to-day business expenses. They typically must be paid off quickly and often come with high interest rates. You may need collateral to secure the loan, but the application process is less demanding than other loans and you could receive funds within a week.

Business line of credit

Instead of borrowing a lump sum of money, a business line of credit allows you to draw from a set amount of funds as you need it. You only pay interest on the amount you borrow. A business line of credit may require a personal guarantee and collateral, and your personal credit may be a determining factor. But you could use a business line of credit to boost cash flow and cover daily costs, building up your business credit at the same time.

Equipment financing

If you need to purchase specific materials for your business, equipment financing could help you cover those expenses. These loans tend to have low rates, as the piece of equipment acts as collateral. Credit history may be a deciding factor and you could be required to contribute a down payment, but payments on equipment loans are generally manageable.

The bottom line

Established business owners who have a good understanding of their operating expenses and can afford to turn over a portion of their daily receivables would be well-suited for a cash advance, Brennan said. This type of financing would be best for short-term expenses like a new air conditioning system, new signage or other equipment, she said.

If you’re interested in obtaining a merchant cash advance, you should understand exactly what you’re getting into, Brennan said. Take your time shopping around to find a company that offers the funding you need and terms you’re comfortable with.

The key piece of information when it comes to cash advances is factor rates, and you should find a company with the lowest ones, Brennan said. Many cash advance providers have become more transparent in disclosing factor rates upfront, Brennan said. Otherwise, you may not find out the rate until after you’ve gone through the application process.

Before selecting a merchant cash advance, you should pay close attention to the total amount that the company expects you to repay, because that will tell you the true cost of the advance. The percentage of your daily sales that the company will take is also important to note, but it won’t show the full cost of the advance.

Merchant cash advances are a relatively new financing product, which creates an opportunity for customer confusion, as well as deceptive practices, Brennan said. Because lending laws do not apply to merchant cash advances, business owners don’t have much legal standing if they want to get out of a bad agreement, she said.

However, if you’ve read the fine print and feel comfortable with the level of risk involved, a merchant cash advance may be a workable option to cover your immediate business needs.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at


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