Hello friend, male or female, of the Indian Republic, caught in a web of
more loans than one has hours to complete a cup of tea? No worries! We’ve
all been there. Whether it is that mid-night sale e-shopping binge or the
farz of impressing the rishta aunties with that new car EMI, loans stack up
like traffic in Mumbai. The good news? This is on ways you can pay them
off much earlier than it takes your local chai wallah to prepare a cutting
chai. Welcome to the Snowball and Avalanche strategies of paying off debt!
Which of these do you think will clear the road quicker so that you don’t
need to be told the outcome by your neighborhood chacha or have to spend
a lot of money?
- The Snowball Method: Because Size Doesn’t Matter
Picture this: It’s like rolling a snowball down a hill. It rolls up from a small
size, which is okay but gains more snow (and momentum) as it progresses.
I would like you to imagine your debt as a pile of snow. I am going to
explain why this is a great analogy. There are good results in the Snowball
method where people take small starts, clear the smallest bills first and feel
the satisfaction of clearing every single bill. It’s a bit like when you’re busy
crossing things to-do list cross of, for instance, checking Instagram and you
feel so accomplished by the middle of the morning.
How It Works:
Make a list of all your debts, regardless of the interest rate. From the
smallest to the largest. If that credit card loan is slowly sucking your life
away at 18%, then it starts with the smallest of loans—the ₹ 2000 you
borrowed from your best friend (interest-free loans are a best friend in this
grown-up world).
Aversion should be made towards paying off the smallest balance. Once
that’s done, go to the next one and include whatever you were paying on the
first debt to the second.
Take the shower until you’re living your life free from debts and feeling like
a dosa minus the potato filling.
Example:
You’ve got:
₹1,000 due to the bill you both left on the Zomato app last month and how
you are still owing your friend half the amount still.
₹10,000 spent using that credit card EMI for the iPhone 15 you had no
other option but to buy since ‘no one uses iPhone 14’ anymore.
₹50,000 car loan.
First of all, it is necessary to pay the ₹1,000 credit first. After that, you will
feel like a star. Now imagine you still have to give that ₹1,000 you were
paying your friend in addition to your EMI for the iPhone and then chip
chip chip at the bigger ones.
Pros:
Instant gratification! It lets you see the progress early enough and you end
up feeling that you are in a position to be doing something.
Motivation boost—Because eliminating that first debt is like getting the
least desirable seat in the Mumbai local.
Cons:
Not always the cheapest. If you are charged a higher interest rate on your
big loans, then you are advised to pay higher after some time of borrowing.
But hey, that’s okay; mental peace can often overlook a few logical holes
one tends to make while deciding not to spend money. - The Avalanche Method: Because Math Aunties Are Always Right
You understand how your mom always tells you, ‘Beta, invest in FD.’ Safe
hai.”? That’s her mind doing the adding up of the return on
investment—spending all the time estimating the costs. If you are a math
nerd—or you are someone who makes it his/her business to save every
penny—then the Avalanche might be your chosen method. Here, you make
payments in order of a debt’s interest rate; you pay the debt with the
highest interest rate first.
How It Works:
Organize all your debts by their respective interest rates, arranged right
from the highest to the lowest.
Pay off the interest charges that are relatively high to begin with, and start
thinking about a long-term credit liberation strategy. For instance, that
credit card loan at 18% interest deserves to be paid before your SaaS’s
personal loan you got at a mere 6% (and some emotional blackmail).
Once the highest interest loan is no longer an option, go down to the next
best, and so on. From this angle, you might want to regard it as paying up
your liabilities systematically.
Example:
₹50,000 credit card loan (interest rate: 18%)
₹1,00,000 home loan (interest rate: 7%)
₹25,000 bike loan (interest rate: 10%)
Begin with going for that outstand credit card loan like you go for the
sweets corner in the Indian marriage sweet shop. After the card loan is out
of the picture, you proceed to the biking loan, and so on.
Pros:
Will cost your company the least amount of money in the long run.
Meaning the more liabilities you pay off early, you save in the long run.
That is like trying to determine which path to take in getting out of a traffic
congestion.
It seems as if you are winning at life and have the extra cash for whatever
the next shiny thing is you think you may want.
Cons:
It just takes longer for anyone to see that they are making progress, and
there is no immediate burst of good feeling one obtains with the Snowball
method. It’s like starting a long-distance train journey—though one does
reach Goa, it has taken ages! - Which One Should You Choose?
Oh, the daily burning question: isn’t it Snowball or Avalanche? Well, it
really depends on the person’s personality. If you are someone who wants
results without having the patience to wait and continues watching a Netflix
series if it’s slow, the Snowball method is for you. Expect little successes
that help you stay encouraged; it is as if your crush liked your picture on
Instagram.
But if you are like someone who plans, plans long-term, calculates every
paisa and makes the numbers work for you, the Avalanche method is your
dhobi wala’s preference—the method gets the costliest things off the deck
first so the rates don’t keep bleeding you. - Debt Calculators: The New Best Friend (because the Old One
Wants Money Back)
That being said, whichever approach you decide to take on, you do not need
to fake it till you make it on idea juggling. To learn how much you’ll save
using either option, use an online debt calculator. There are tools aplenty;
for instance, apps for managing loans on one’s Cred or MoneyView, the tool
of creating some repayment plan. Because, let’s just be honest, nobody
wants to sit down and figure out the mess of it with savings.
Here’s a pro tip: Try both! Enter both sets of numbers into an online
calculator and then quickly determine which of the two makes you feel
better about living on this earth. And, of course, the idea is to pay up debts
before one falls back on a loan once again—this time for your future kids’
school fees because private schools are not cheap.
Final Thoughts: Snowball or Avalanche?
Really, the best approach, irrespective of which one you have opted for, is to
maintain consistency! Saying this feels like deciding between dal makhani
and butter chicken—both are great as long as you do not leave the dinner
half way. Well, there you have it: Get your calculator handy (your phone
will do as well), choose your favorite debt repayment plan, and annihilate
those loans!
Yes, a debt-free life is on the way and let me tell you that zero in your loan
balance feels better than the extra chutney on your pav bhaji.
Good luck! May your EMI stress evaporate quicker than you saying, ‘Aaj
paisa nahi hai bhaiya!