Easier and faster
What is the debt snowball?
The debt snowball is similar to building a snowball.
The debt snowball follows the same process. You list your all your debts — smallest to largest — and you attack the smallest by paying the maximum or paying it off. Pay the minimum for the rest. Make the payments regardless of the interest rates.
Use the amount that you paid for the small debt last month to pay off the next debt, paying minimum on others, until you are debt-free.
The method was popularised by Ramsey in his best-seller, Total Money Makeover. Ramsey says millions of Americans have become debt-free, using this sure-fire method.
Does it work?
Yes. By paying off the smallest debt first, you create “small victories” that keep you on fire to continue until you pay off everything.
How to succeed in your debt snowball
Starter Emergency Fund:
Dave Ramsey only advises you to start your debt snowball after setting aside $1,000 (Dh3,670) as a starter emergency fund. Adjust the amount to Dh1,000 or Dh3,000, whichever suits you. This way, you won’t go into debt in case of an emergency.
Plastic Surgery: If you’re financially bleeding, and profusely at that, the answer is not just blood transfusion. It’s to stop the bleeding.
Cut up your credit cards by doing a “plasectomy”, as Ramsey puts it. This is when you DECIDE not to resort to debt anymore. Your mantra should be: “Never again.”
Budget: Write your monthly budget before the month begins and include your debt repayment. Squeeze every dirham from your budget to go to debt repayment if they’re not for basic, again BASIC needs. Be radical. Ramsey calls it “scorched earth lifestyle” for a while. Close your eyes and imagine how life will be like with no payments.
Be Intense: Keep a reminder on your fridge, wall or diary of your debt repayment plan. There are a bunch of templates available online. Agree with your family that ALL of you have to commit to eliminating debt.
Cash Flow: Increase cash flow by getting a higher paying job and taking part-time jobs. The UAE now allows this. Take advantage of it! A few hundred dirhams is a big help. Also, sell the “stuff” you’ve accumulated.