Finance House Personal Loan Eligibility - Check out the Eligibility Criteria for Finance House Personal Loan in UAE like Minimum Salary, Age, Document Required, Nationality, Salary Transfer & More.
Personal Loan up to 8 times your Salary
Get personal loan at Lowest Interest Rate
Accumulated debt can be a source of great stress and can lead to ineffective financial management. According to a report by Citibank UAE, almost 46% of people in the UAE are currently in debt and around 12% are actively looking to get a loan. With this in mind, it is clear that expert debt reduction and management solutions are essential. The debt snowball method is one of the most widely used debt reduction strategies, helping borrowers not only pay off their debts completely but to also cultivate good financial habits. This article will examine the debt snowball plan, including its advantages, limitations and when it is beneficial to use.
The debt snowball method is a popular way of tackling debt payments, created by renowned finance expert and radio personality Dave Ramsey. It is one of the three most widely used strategies for eliminating loans. The idea is to list all of your debts according to their size, and then use any extra money each month to pay off the smallest debt first. Minimum payments are then made on the remaining debts while this occurs. By focusing on one debt at a time, you can make consistent progress on your financial goals without feeling overwhelmed. Additionally, as each debt is paid off, you can use the money that was being used to pay it off to pay down the next largest debt. This method can help you stay motivated and make tangible progress towards becoming debt free.
A few simple steps are to be followed for using the debt snowball strategy successfully –
Let’s understand this with an example.
Mohammed, a techie in the UAE is currently dealing with four outstanding debts.:
As per the debt snowball plan, Mohammed will first tackle the smallest debt of AED 3,000, the credit card debt, and make efforts to pay it in full. To do this, he may reduce his expenses and allocate extra money towards the debt or do some overtime work to generate extra funds for repayment. Once the credit card debt is cleared, he can move on to the second smallest debt, the medical bill of AED 5,000, and continue in this fashion until his biggest debt, the car loan, is paid off.
The catch here is to stay focused on one goal at a time i.e., by repaying the smallest debt as soon as possible.
|Personal Loan Debt - A Real Time Nightmare for Expats!|
Let’s discuss a few advantages of the snowball debt payoff method of repaying loans and reducing debts:
By the time all debts have been paid off completely, debtors are already in the habit of repaying loans as soon as possible by making extra efforts and contributions.
There are certain areas where the debt snowball plan to pay off loans lacks –
A debt snowball calculator is an online tool that can be used to calculate the total length of the period it will take to pay off all the active loans and the total interest you will pay during repayment.
To use a free debt snowball calculator, you will need information like the type of debt (home loan, car loan, credit card loan, and so on), the applicable interest rate, the total loan amount, and the minimum monthly payment of the loan. Simply enter the mandatory information for all the different loans you have and click on the calculate button to get details of your snowball plan.
Keep in mind that the results may differ as per the calculator you have chosen. Some only show the number of months or instalments it will take to repay all the included debts while others also show the interest amount you will pay, the total debt amount, and the total monthly payment amount. This schedule applies as long you stay on track with all payments for the suggested duration.
The debt snowball method of debt reduction was created by finance expert and author Dave Ramsey.
A debt snowball plan requires the borrower to start paying off their loans starting from the one with the smallest balance. Meanwhile, the minimum payment can be made towards all other active loans as per the loan repayment schedule sent by the lender.
A debt snowball spreadsheet is nothing but the debt snowball schedule created by debt snowball calculators. It has a summary of all your payments, the total interest to be paid, and the number of months it will take to repay all the active loans.
Most debt snowball calculators available online are free. You can use any of these free debt snowball calculators to get your debt snowball plan.
The snowball debt payoff method does not take interest rates into consideration which may lead to greater amounts paid towards interest if debts with larger payable amounts also have the highest interest rate.
It is crucial to stick to the plan when you use the debt snowball method to pay off debt as each slip sets you back and increases the total loan repayment time.
The best way to use the snowball debt payoff method and lower your interest rate simultaneously is debt consolidation. You can use a balance transfer credit card or personal loan consolidation to reduce interest rates first and then use the snowball debt payoff method to eliminate each debt one by one.
The debt avalanche method prioritises loan repayment as per the interest while the debt snowball prioritises loan payment as per loan amount. Snowball is better if you get motivated to stay on track with small wins in sight. The Avalanche debt repayment method, however, is better if you wish to get rid of the debts incurring the highest interest first.