Credit card debt stress troubles
Effective strategies for paying off unpaid credit card balances include ‘debt avalanche’ and ‘debt snowball’ methods. But what if you find these approaches too hard? Image Credit: Shutterstock

Dubai: Paying off your credit card balances can get overwhelming when debts and interest charges pile up over time, but there have been effective strategies that can help you pay down your dues faster.

The most popular and widely recommended strategies for paying off high-interest debt like unpaid credit card balances, include ‘debt avalanche’ and ‘debt snowball’ methods. But with these methods you may find yourself worrying about how to come up with large payments for your debts.

How does ‘debt snowball’ method differ from ‘debt avalanche’ approach?
With ‘debt snowball’ method, you first pay off the smallest of all your credit card balances. Once the lowest due is paid, you work your way upwards and roll the money you’ve set aside onto the next-smallest debt owed. This approach helps you stay motivated to stick with your debt payoff plan.

With the ‘debt avalanche’ approach, you prioritise paying off the card with the highest interest rate, saving you interest charges in the long run. By focusing on the most expensive debt, it would effectively mean you should pay less over time with this method, as it addresses high interest first.

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‘Snowball’, ‘avalanche’ debt approaches not working for you?

“When it comes to popular debt repayment strategies, ‘snowball’ and ‘avalanche’ methods rely on budgeting money every month for minimum payments on some debts, plus extra money to throw at the debt you're prioritising,” explained Mirin Raul, a Dubai-based debt advisor.

“But what if you feel there is no money in your budget to set aside for these payments? That's where the ‘snowflake’ method comes in. It doesn't replace the ‘avalanche’ or ‘snowball’ methods, but rather is a way to find the money you need for either approach.”

With ‘debt snowflake method’, you look for ways to trim a small amount off your everyday spending or earn a little extra pocket change, instead of worrying about how to come up with large lump sum payments for your debts.

You then use that small savings to make very small, frequent payments on your credit card accounts. While the amounts may seem minuscule compared to your overall debt balance, over time, the little payments add up and knock off months from your repayment term, saving you money.

How does ‘debt snowflake method’ work, how can it be used?
“Debt snowflake is a method that you can use in combination with other repayment methods. Whether you decide to tackle your highest interest debt first, or the debt with the lowest balance, using the ‘snowflake approach’ can help you find money to pay down the debt,” added Raul.

So with ‘snowflake’ method, you apply everyday savings to your debt right away. Let's say your weekly grocery budget is Dh50. But if you only spent Dh46 one week, you will take that surplus and make a Dh4 payment on your credit card balance. That’s how ‘debt snowflake’ approach works.

Save on repayment term, interest charges with ‘debt snowflake’

The logic is pretty straightforward. If you do this for every circumstance where you save a little money, over time you will realise that little savings can add up quickly. But is the debt payment strategy really effective?

“When facing a mountain of debt, the idea that an extra Dh4 or Dh5 here and there could make a difference may seem absurd at first,” said Dubai-based consumer credit analyst Rupesh Naish. “But those little snowflake payments can have a big impact.”

Assume you have a credit card balance of Dh3,000 and with an annual interest rate (APR) charge of 15 per cent of your total due. If your minimum payment is Dh100, it would take you 38 months to pay off the balance and you would pay Dh784 in interest. Now let’s say you take this debt approach.

Let's say you shopped for deals at the grocery store, and saved Dh4 a week. If you applied the extra Dh16 a month to your debt payments, your repayment term would be just 32 months and you'd pay just Dh647 in interest charges. This method gets you out of debt a full six months earlier!

What are the downsides to using ‘debt snowflake method’?
One the key downsides to using the above approach is its limited impact in the short term. Unlike the ‘debt avalanche method’, which allows to pay higher interest debt first and makes a visible debt in your overall debt levels, the rewards of using the ‘debt snowflake’ approach are not in plain sight.

“If you have trouble staying motivated on your debt journey, the small short-term impact of using the debt snowflake approach on its own can make it difficult to maintain discipline. And plus, it’s difficult to see the long-term impact,” added Naish.

“With other debt payoff strategies, there are calculators you can use to get an idea of how much money you'll save and how long it'll take you to pay off your debt. With the ‘snowflake approach’, there's no way to see the long-term effect because your everyday savings can vary every month.”

Verdict: Should you use the ‘debt snowflake approach’?

When facing credit card debt, finding large sums of money to repay your balance can be unrealistic. But that's why the debt snowflake is so effective.

“By being diligent about applying your little savings, you can take control of your debt and pay off your balance ahead of schedule, saving yourself hundreds or even thousands of dirhams,” added Raul. “But given the advantages, you need to be willing to put in the extra work.

“With this approach, savings will lower your repayment term and interest charges. Applying your small savings each month, looking for additional savings and applying any small extra amounts you come across to your debt, your snowflakes can accumulate that much faster.”

However, keep in mind that the ‘debt snowflake method’ requires a lot more work than other debt payoff approaches. If you struggle to stay organised and disciplined, you may be left feeling discouraged, and this method will probably not work for you.