The Snowball Effect
Slaying the Debt Beast with Small Habits
A tiny snowball starts at the top of the hill. Powerless and insignificant, it begins its gentle descent. Slowly but surely, the snowball grows. It takes on size, and it takes on speed. By the time it reaches the end of the slope, it has become a mighty, unstoppable avalanche.
This force of nature can work against you. Law school loans are a classic example. Suppose you have $160,000 in debt (the average amount a young lawyer holds these days) at an average interest rate of 7%. You want to get these loans off your back, so you decide to throw $1,000/mo. at the Debt Beast. That’s a lot of money, likely enough to rent a second apartment. How much damage does it do?
That’s right. You’ve chipped away $800 from the Debt Beast. At this rate, only about 40 years to go. You’ll end up paying over $300k in interest alone, about $466k total.
This grim scenario is if you have $1,000 each month in disposable income. This is not realistic for everyone, and might preclude other significant expenses like a mortgage, a child or saving for retirement. But if you pay less than $1,000/mo., the Debt Beast will grow faster than you can do damage, and it will never be defeated (perhaps you can rely on embattled and unreliable public service loan forgiveness programs — you can learn more about that heartbreaking situation from NPR).
The Snowball Effect can defeat you with a force as crushing and ubiquitous as gravity. But it can also be mastered and used as a weapon in your favor. In his bestselling book Atomic Habits, James Clear calls this weapon “the aggregate power of marginal gains.”
An obvious and oft-repeated example of this is a stone mason crashing his hammer against a rock 99 times. On the 100th strike, the stone splinters into pebbles and the day is won. What was different about the 100th blow? Nothing — it was aided by the 99 that came before. You might not see progress right away, but good habits are working behind the scenes toward big outcomes.
Another classic example is the doubling penny:
If you double your penny every day for a month, it doesn’t grow that much at first. After a week, you still don’t have a single dollar. But in the closing moments of the month, the amount explodes into the millions.
It’s not as dramatic, but the power of compound interest works this way too. And it can work either for you or against you.
$30/day is realistic for most lawyers. A big firm lawyer making $190k annually makes more than $500/day. A salary of $80k annually yields over $200/day. Even after taxes, $30/day is achievable for almost any lawyer. Therefore, becoming a millionaire is achievable for almost any lawyer.
Remember, 7% may be the interest rate on your loans. But it’s also the average annual return in the stock market (or, you know, 1,700% return in one month if you invested in GameStop, but don’t pick individual stocks!).
Recall our example from before, a $160,000 loan. Instead of paying $1,000/mo., what if you pay $1,100/mo. That 40 year horizon shrinks to 27 and the total figure falls from $466k to $357k. That’s right, an extra hundred bucks a month ($1,200/year) toward your debt can save you over $100,000 dollars in interest over the life of the loan.
The key is to harness the Snowball Effect and make it work for you. Whatever your goal is, small changes over time are your secret weapon. Eat 100 fewer calories each day, and you might not notice a difference after a week or even a month. But over a year, that’s 36,500 fewer calories. That’s roughly equivalent to 10 pounds!
When it comes to tackling your law school debt, keep in mind the power of small habits and the aggregate power of marginal gains. If you can do that, the Debt Beast won’t stand a chance.
- Jake the Dog from Adventure Time on Cartoon Network
- The Beast from Over the Garden Wall on Cartoon Network
- Screenshot from Avengers: Endgame from Marvel & Walt Disney Studios