TomorrowMakers

Find out how you can clear up your credit card dues using the Debt Snowball method.

Why the Debt Snowball method is the best way for women to settle their credit card dues?

Do you have multiple credit cards and multiple debt amounts? Are you struggling to meet your repayment schedules? Perhaps you will find valuable pointers from Dave Ramsey, American financial guru, bestselling author, and blogger.

Ramsey, who has authored bestsellers on getting out of debt and also hosts talk shows on the subject, advises struggling debtors to draw inspiration from physics when planning their debt repayment moves. His tip: debtors should focus on clearing small debts first, and watch their clearances gather momentum – just as a humble snowball grows into something bigger when it rolls down a hill. 

The repayment strategy that Ramsey so actively advocates has come to be known as the Debt Snowball method. “It’s a good technique for building snowballs,” he says in one of his blogs. “And it’s an even better method for paying off your non-mortgage debt.” 

But what exactly is the Debt Snowball method? Is clearing the smaller debts first all that is required, or is there more to it? 

Explaining Debt Snowball

If you are wondering about all that, you would be right: Debt Snowball method is indeed a bit more involved than just making small payments first – but only just; it really is quite simple.

But before we begin discussing how it works, please know that the Debt Snowball method is for clearing credit card dues, which means it does not address mortgage payments on the debtor’s house (if any), or even the EMIs on a car; people usually do not make these payments using their credit cards, mainly because of the big amounts involved, and sometimes because of tax write-off purposes (for housing loans). 

More importantly, the Debt Snowball method is for people with multiple credit cards. 

Now, on to understanding it: let us assume you are one of those with multiple cards and multiple debts. Under this plan, the first thing you, as the debtor, would have to do is list each of your debts across all the cards, from the smallest to the largest. 

Next, use any disposable money that is available each month to pay off your smallest debt first, while clearing only the minimum monthly dues on the other (bigger) debts. 

Let us also assume you can spare Rs 1000 from your monthly budget to pay the dues on these cards. If you rank the cards from the smallest outstanding balance to largest, the total due of Rs 1200 on the first card is the least, while that for ‘leisure’ activities is the highest. 

If you are to follow the Debt Snowball method, you would pay only the minimum dues for the second and third cards – which work out to a total of Rs 375 – while the remaining Rs 625 goes towards repayment of dues on Card A. 

This process has to be repeated every month till the total debt on the first card is squared off. Once this is done, it is time to move on to the next card with the smallest balance dues.

Advantages of Debt Snowball 

Does it work? Yes, it does. The main advantage that people get from this particular method is the psychological boost they receive; instead of being cowed down by piling debts, the Debt Snowball method motivates them to tackle the problem head-on.

This is why: with this system, you will basically be setting objectives – clearing one due payment first before moving on to the next; and in the process, ensuring that your dues are settled faster than they would if you were to spread the payments. With this comes a sense of achievement, as knocking off each debt and celebrating each win is a morale booster. It can make you more inclined to continue the plan.

Moreover, the Debt Snowball method also enables debtors to learn how to manage their finances in a more efficient manner by channelling their attention towards tackling one debt instead of grappling with all at the same time and making a mess. This also helps to keep people more motivated; even those who tend to get disheartened or upset easily.

Backed by research

Incidentally, the ‘motivation’ factor is not notional, and has in fact been established by researchers from Oxford University Press (OUP). As per their study published in the Chicago-based Journal of Consumer Research, debtors paid off more dues if they focused on just one card, than if they made equal payments across all their cards.   

“Concentrated (versus dispersed) repayment strategies tend to boost consumers’ motivation to become debt-free, leading them to repay their debts more aggressively,” says the abstract to the study. It claims that the chance of clearing all dues over a period of time was greater if debtors focused on just one card at a time.

The study also said the ‘motivating effect’ was the most pronounced when repayments were for the smallest debts, as debtors saw reduction of dues under any one account as being an ‘overall progress in debt repayment’. 

There is another advantage to the Debt Snowball. If there is an issue with job loss, or money gets tight for some reason, a Debt Snowball method of repayment means that after clearing a few dues, the only burden on you is to pay the minimum on what is pending – till your situation improves.

Last words

What happens if a financial setback comes your way – say, loss of job or a medical emergency? In fact, on occasion it can be happy tidings that may demand require huge expenses, like a baby on the way. Such things can catch anyone off-guard.

At times like these, when an unexpected situation arises and puts a strain on your finances, it is advisable to press the ‘pause’ button on your Debt Snowball and save up. Even so, do try and pay the minimum dues. You can restart your Debt Snowball once your financial situation has improved and still reach your money goals; it will just take a little longer than intended. 

What is important is to meet the immediate situation at hand. The worst that can be expected from putting a stop to the repayment schedule is you will not be paying extra on debts; but then you are also not collecting any new debts.

Do you have multiple credit cards and multiple debt amounts? Are you struggling to meet your repayment schedules? Perhaps you will find valuable pointers from Dave Ramsey, American financial guru, bestselling author, and blogger.

Ramsey, who has authored bestsellers on getting out of debt and also hosts talk shows on the subject, advises struggling debtors to draw inspiration from physics when planning their debt repayment moves. His tip: debtors should focus on clearing small debts first, and watch their clearances gather momentum – just as a humble snowball grows into something bigger when it rolls down a hill. 

The repayment strategy that Ramsey so actively advocates has come to be known as the Debt Snowball method. “It’s a good technique for building snowballs,” he says in one of his blogs. “And it’s an even better method for paying off your non-mortgage debt.” 

But what exactly is the Debt Snowball method? Is clearing the smaller debts first all that is required, or is there more to it? 

Explaining Debt Snowball

If you are wondering about all that, you would be right: Debt Snowball method is indeed a bit more involved than just making small payments first – but only just; it really is quite simple.

But before we begin discussing how it works, please know that the Debt Snowball method is for clearing credit card dues, which means it does not address mortgage payments on the debtor’s house (if any), or even the EMIs on a car; people usually do not make these payments using their credit cards, mainly because of the big amounts involved, and sometimes because of tax write-off purposes (for housing loans). 

More importantly, the Debt Snowball method is for people with multiple credit cards. 

Now, on to understanding it: let us assume you are one of those with multiple cards and multiple debts. Under this plan, the first thing you, as the debtor, would have to do is list each of your debts across all the cards, from the smallest to the largest. 

Next, use any disposable money that is available each month to pay off your smallest debt first, while clearing only the minimum monthly dues on the other (bigger) debts. 

Let us also assume you can spare Rs 1000 from your monthly budget to pay the dues on these cards. If you rank the cards from the smallest outstanding balance to largest, the total due of Rs 1200 on the first card is the least, while that for ‘leisure’ activities is the highest. 

If you are to follow the Debt Snowball method, you would pay only the minimum dues for the second and third cards – which work out to a total of Rs 375 – while the remaining Rs 625 goes towards repayment of dues on Card A. 

This process has to be repeated every month till the total debt on the first card is squared off. Once this is done, it is time to move on to the next card with the smallest balance dues.

Advantages of Debt Snowball 

Does it work? Yes, it does. The main advantage that people get from this particular method is the psychological boost they receive; instead of being cowed down by piling debts, the Debt Snowball method motivates them to tackle the problem head-on.

This is why: with this system, you will basically be setting objectives – clearing one due payment first before moving on to the next; and in the process, ensuring that your dues are settled faster than they would if you were to spread the payments. With this comes a sense of achievement, as knocking off each debt and celebrating each win is a morale booster. It can make you more inclined to continue the plan.

Moreover, the Debt Snowball method also enables debtors to learn how to manage their finances in a more efficient manner by channelling their attention towards tackling one debt instead of grappling with all at the same time and making a mess. This also helps to keep people more motivated; even those who tend to get disheartened or upset easily.

Backed by research

Incidentally, the ‘motivation’ factor is not notional, and has in fact been established by researchers from Oxford University Press (OUP). As per their study published in the Chicago-based Journal of Consumer Research, debtors paid off more dues if they focused on just one card, than if they made equal payments across all their cards.   

“Concentrated (versus dispersed) repayment strategies tend to boost consumers’ motivation to become debt-free, leading them to repay their debts more aggressively,” says the abstract to the study. It claims that the chance of clearing all dues over a period of time was greater if debtors focused on just one card at a time.

The study also said the ‘motivating effect’ was the most pronounced when repayments were for the smallest debts, as debtors saw reduction of dues under any one account as being an ‘overall progress in debt repayment’. 

There is another advantage to the Debt Snowball. If there is an issue with job loss, or money gets tight for some reason, a Debt Snowball method of repayment means that after clearing a few dues, the only burden on you is to pay the minimum on what is pending – till your situation improves.

Last words

What happens if a financial setback comes your way – say, loss of job or a medical emergency? In fact, on occasion it can be happy tidings that may demand require huge expenses, like a baby on the way. Such things can catch anyone off-guard.

At times like these, when an unexpected situation arises and puts a strain on your finances, it is advisable to press the ‘pause’ button on your Debt Snowball and save up. Even so, do try and pay the minimum dues. You can restart your Debt Snowball once your financial situation has improved and still reach your money goals; it will just take a little longer than intended. 

What is important is to meet the immediate situation at hand. The worst that can be expected from putting a stop to the repayment schedule is you will not be paying extra on debts; but then you are also not collecting any new debts.