The idea behind the debt snowflake method is that little debt payments go a long way to make a big difference.
If you are one of those struggling to pay off their loans, then there is a method which can help you get out of the debt trap fast — one most famous being – ‘The Debt Snowflake Method’. The idea behind the debt snowflake method is that little debt payments go a long way to make a big difference. Just like little snowflakes can snowball into something monumental – tiny debt payments can add up to help reduce your debt in a major way.
Let me take you through some ways to make the snowflake method work for you:
1. Paying off Credit Card Debt
A lot of millennials get caught in the credit card debt trap simply because they are still trying to figure out how to use it effectively. Remember that having a credit card does not mean you have extra supply of money – it is just that you can spread out your payments rather than stressing a single source of income.
Start by looking at your credit card bills, and understand if you are paying any additional charges which are unaccounted for. Next segregate you expenses in a manner where you identify the ones that specifically enable you to get some rewards/returns on them (this way you are scrapping more of them). And most importantly, your credit limit is not your personal expenditure limit – identify a credit discipline for yourself and stick to that!
For example, let’s assume you have a credit card and its outstanding amount is Rs 121,000 with an APR of 10% and your minimum payment is Rs 9000. It will take you over 4 years to pay if off, and Rs 21,000 will go towards interest.
However, if you start saving just Rs 200 per week in grocery shopping with coupons and you apply that extra Rs 800-Rs 1000 per month to pay off your credit card dues, your repayment would take about 3 years to pay off the amount without any additional interest.
2. Small things – ‘Big’ Difference
I have always stuck to a simple theory – building money is the culmination of several small things that eventually lead to a big change. Similarly, the debt snowflake method demands we make several small lifestyle changes that will ultimately lead to something big in the long run.
# Opting for health food – choose homemade food instead
# During the festive season, figure out some basic DIYs to get sorted
# Try and reduce one expense every month you feel is tilting towards luxury
3. Snowflakes in your money
One major advantage of using your e-wallets is that you are able to find several snowflakes in your budget. Some of the simple methods are:
# Find out how you can maximise the cash-back on your credit cards
# Learn to make most of the referral deals before making any online purchase
# Keep your coupons handy – and make the most of them before the final checkout
These simple tricks do not necessary require intellect, but a general awareness of your expenses and how to make minor alterations to protect yourself from the debt-trap.
(By Rahul Jain, Head-Personal Wealth Advisory, Edelweiss)